Selling costs refer to those expenses which are incurred for popularizing the differentiated product and increasing the demand for it. Selling cost is a special feature of monopolistic competition. Under perfect competition due to homogeneous product and under monopoly because of absence of substitute, the selling costs become unnecessary. The most important instrument by which a firm can convince its buyers about the differentiating nature of its product is advertising. Such expenditure which is incurred by a firm under monopolistic competition to persuade customers to prefer its product to that of its rivals is known as ‘selling costs’. According to famous American economist, Edward Chamberlin, Selling Costs are Costs incurred in order to alter the position or shape of demand curve for a product. Such selling costs may be incurred in any form such as advertising, sales promotion, samples to potential customers etc. Whatever 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.
Measures to Control Inflation
Inflation should be controlled in the beginning stage, otherwise it will take the shape of hyper-inflation which will completely run the country. The different methods used to control inflation are known as anti-inflationary measures. These measures attempt mainly at reducing aggregate demand for goods and services on the basic assumption that inflationary rise in prices is due to an excess of demand over a given supply of goods and services. Read more: Economic Policies to Control Inflation Anti-inflationary measures are of four types: Monetary policy Fiscal policy Price control and rationing Other methods 1. Monetary Policy It is the policy of the central bank of the country, which is the supreme monetary and banking authority in a country. The central bank may use such methods as the bank rate, open market operations, the reserve ratio and selective controls in order to control the credit creation operation of commercial banks and Continue reading
Disequilibrium in Balance of Payments
We have noted above that the balance of payments is always in balances from accounting point of view. Besides, in the accounting procedure, a deficit in the current account is offset by a surplus in capital account resulting from either borrowing from abroad or running down the gold and foreign exchange reserves. Similarly, a surplus in the current account is offset by a corresponding deficit in capital account resulting from loans and bills to debtor country or by decline of its gold and foreign exchange reserves. However, disequilibrium in the balance of payments does arise because total receipts during the reference period need not be necessarily equal to the total payments. When total receipts do not match with total payment of the accounting period, this is a position of disequilibrium in the balance of payments. The final balance of payments position is obtained in the manner described below. For assessing Continue reading
Law of Returns to Scale
The law of returns to scale examines the relationship between output and the scale of inputs in the long-run when all the inputs are increased in the same proportion. This law of returns to scale in economics is based on the following assumptions; All factors are variable but the enterprise is fixed. There is no change in technology. Perfect competition prevails in the market. Returns are measured in physical terms. Three Phases of the Law of Returns to Scale Depending on whether the proportionate change in output exceeds, equals or decrease in proportionate to the change in both the inputs, the production is classified as increasing returns to scale, constant returns to scale and decreasing returns to scale. 1. Increasing Returns to Scale Increasing returns to scale arises due to the following reasons. Dimensional economies, Economies flowing from indivisibility, Economies of specialization, Technical economies, Managerial economies, Marketing economies. Alfred Marshall Continue reading
India and Capital Account Convertibility: Some Facts
Whatever the apparent theoretical benefits of capital account convertibility, they have not yet been vindicated by the actual empirical evidence; rather, the experience of the countries in the developing world that have experimented with capital account convertibility has been that of increased market volatility and financial crises. Moreover, at least a part of the large inflows of capital into India are a consequence of the recessionary conditions elsewhere. The country’s macroeconomic fundamentals, though better than before, are not good enough to warrant long-lasting confidence from foreign investors. The reform process is not proceeding with adequate speed, banks are saddled with large volumes of non-performing assets, the financial system is not deep or liquid enough and the country ranks high in the list of corrupt nations. Once the conditions in the rest of the world improve, and the interest rate differentials between India and the rest of the world narrow further, Continue reading
Causes and Effects of 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 available in Continue reading