Economists usually define general disequilibrium as the state in which contrasting market forces of supply and demand fail to reach a balance and there exist an intrinsic inclination for change. The main indicator of market disequilibrium is the continuation of shortages either in the demand or supply side of the economy. There are two main models that hold divergent views concerning disequilibrium namely the Keynesian and Classical Economists models. Generally, the major causes for disequilibrium in the markets if the deficiencies created either in the aggregate demand or aggregate supply side of the economy. This means that in such circumstances the market does not clear. Main causes of disequilibrium are understood in the light of the economic model s followed by scholars. For instance, the Keynesian theory’s causes differ from that of classical economists. For instance, following Keynesian’s view, disequilibrium arises when there are disparities between leakages and injections where 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.
Factors Influencing Foreign Exchange Rates
Foreign exchange rates are extremely volatile and it is incumbent on those involved with foreign exchange – either as a purchaser, seller, speculator or institution – to know what causes rates to move. Actually, there are a variety of factors – market sentiment, the state of the economy, government policy, demand and supply and a host of others. The more important factors that influence foreign exchange rates are discussed below: Strength of the Economy :The strength of the economy affects the demand and supply of foreign currency. If an economy is growing fast and is strong it will attract foreign currency thereby strengthening its own. On the other hand, weaknesses result in an outflow of foreign exchange. If a country is a net exporter (as were Japan and Germany), the inflow of foreign currency far outstrips the outflow of their own currency. The result is usually a strengthening in its value. Continue reading
Indian Banking Sector Reforms in 1991
In 1991, the country was caught into a deep crisis. The government at this juncture decided to introduce comprehensive economic reforms. The banking sector reforms were part of this package. The main objective of Indian banking sector reforms was to promote a diversified, efficient and competitive financial system with the ultimate goal of improving the allocative efficiency of resources through operational flexibility, improved financial viability and institutional strengthening. Many of the regulatory and supervisory norms were initiated first for the commercial banks and were later extended to other types of financial intermediaries. While nudging the Indian banking system to better health through the introduction of international best practices in prudential regulation and supervision early in the reform process, the main idea was to increase competition in the system gradually. The reforms have focused on removing financial repression through reductions in statutory preemptions, while stepping up prudential regulations at the same Continue reading
Supply-Side Economics – Definition and Influencing Factors
The early 1980s saw the emergence of a new school of thought that emphasized the impact of aggregate supply on the economic growth of nations. This new school of thought was called supply-side economics. Supply-side economists argued that creating an economic environment that provided incentives for people to work and save money, and also an environment that is conducive for firms to invest and create employment would cause an increase in aggregate supply. The supply-side economists assumed that the aggregate demand of the nation was always adequate and that it would absorb the aggregate supply, thus indicating their acceptance of Say’s law. Supply-side economics, thus, laid emphasis on reduction in tax-rates and social spending, promotion of free labor markets and liberalization of economy. The supply-side economists believed that incentives and tax-rates influence the economy’s aggregate supply to a great extent. According to them, the tax-rates induce people either to produce Continue reading
Welfare Economics
“The greatest meliorator of the world is selfish, huckstering trade.” (R.W. Emerson, Work and Days) Welfare Economics is a normative branch of economics that is concerned with the way economic activity ought to be arranged so as to maximize economic welfare. The hallmark of welfare economics is that policies are assessed exclusively in terms of their effects on the well-being of individuals. Accordingly, whatever is relevant to individuals well-being is relevant under welfare economics, and whatever is unrelated to individuals well-being is excluded from consideration under welfare economics. Economists often use the term utility to refer to the well-being of an individual, and, when there is uncertainty about outcomes, economists use an ex ante measurement of well-being, so-called expected utility. Welfare economics employs value judgement s about what ought to be produced, how production should be organized, the way income and wealth ought to be distributed, both now and Continue reading
Price Discrimination – Meaning and Definition
Often do we come across situations when we find that a single producer sells his product at different prices to different buyers or in different markets. This practice of charging different prices to different buyers or in different markets for the same product is called Price discrimination. According to British economist Joan Robinson, “the act of selling the same article, produced under a single control, at different prices to different buyers is called Price discrimination.” Price discrimination is a practice firms employ when they charge consumers different prices for the same good in order to earn higher profits. Price discrimination is made possible because of varying utility derived from the consumption of the same good and varying price elasticity of demand. There are 3 types of price discrimination, namely: first-degree price discrimination (perfect price discrimination), second-degree price discrimination and third-degree price discrimination. A firm is said to have practiced first-degree Continue reading