Generally, consumers and sellers react differently in the market in response to a given change in the price of some products or services. In most cases, especially where the goods produced are elastic, when the prices of such commodities increase, customers counter the adjustment by lowering the quantity of the goods they consume. Similarly, if the cost decreases, buyers are likely to purchase a good volume of the product being offered. In other words, the consumption of the goods moves in the opposite direction from the prices. The products that portray such behavior are mainly consumer durables that customers can postpone their usage when the prices increase too high. For instance, assuming the cost of a car increases, the buyer may opt not to buy the product, thus reducing the number of items sold significantly. By understanding the concept of price elasticity of demand, such as various types and critical factors 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.
The Efficient Markets Hypothesis (EMH)
Market Efficiency The concept of market efficiency was first developed in the finance literature and its full form was first explained by Engene Fama. But now-a-days this concept is being used in other areas also. Market efficiency implies that prices reflect all available information, but it does not imply certain knowledge. Many pieces of information that are available and reflected in prices are fairly uncertain. Efficiency of markets does not eliminate that uncertainty and therefore does not imply perfect forecasting ability. By definition then there should not exist any unexplained opportunities for profit. “An ‘efficient’ market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants. In an efficient market, competition among the many intelligent participants leads to a situation Continue reading
Process Costing and Job Costing
Management accounting uses several costing techniques. Costing techniques are very important to the business management because they help them make sound decisions for the company. They also help companies keep track of the costs that they incur in the production process. Process costing and job order costing are two types of costing techniques that are have a similarity that they both analyze the costs that are incurred by the organization. Though these methods can be used to analyze costs, they differ in their approach. Process Costing This is a costing technique that is used in finding costs in homogeneous or products that are uniform. This technique makes averages of costs for all units to make per unit costs. Work in process account is used to track the process costs. Through this system, a continuous manufacturing process is used to produce identical goods. Computation Procedures for Process Costing Manufacturing costs are Continue reading
The Great Depression – Facts, Causes, and Effects
The Great Depression is a term denoting the economic crisis that emerged in the United States and some European countries. The crisis began in 1929 and continued until the end of the 1930s. The term “depression” is mostly used to refer to events solely in the U.S., where virtually entire American nation was particularly strongly affected by a depressive state in addition to the economic decline. The term “global economic crisis” is commonly used for other countries that have experienced the same events (UK, Germany, France, and other European countries to a lesser extent). Large industrial cities had suffered the most from the crisis, but rural areas were also affected. Crises in world history occur from time to time. However, according to the researchers, the Great Depression is one of the most prolonged crises in the history of the industrialized countries. It is considered that it started with the collapse Continue reading
Important Banking and Economic Indicators
1. CASH RESERVE RATIO Cash Reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks. The amount of which shall not be less than three per cent of the total of the Net Demand and Time Liabilities (NDTL) in India, on a fortnightly basis and RBI is empowered to increase the said rate of CRR to such higher rate not exceeding twenty percent of the Net Demand and Time Liabilities (NDTL) under the RBI Act, 1934. 2. STATUTORY LIQUIDITY RATIO In terms of Section 24 (2-A) of the B.R. Act, 1949 all Scheduled Commercial Banks, in addition to the average daily balance which they are required to maintain in Continue reading
Hawtreys Monetary Theory of Trade Cycles
The British economist Ralph G. Hawtrey regards trade cycle as a purely monetary phenomenon. According to him, non-monetary factors like wars, earthquakes, strikes and crop failures may cause partial and temporary depression in particular sectors of an economy. However, these non-monetary factors cannot cause full and permanent depression involving general unemployment of the factors of production in a trade cycle. On the other hand, changes in the flow of money are the exclusive and sufficient cause of changes in trade cycle. In Hawtrey’s opinion, the basic cause of trade cycle is the expansion and contraction of money in a country. According to Hawtrey, changes in the volume of money are brought about by changes in the rate of interest. For instance, if banks reduce their rate of interest, producers and traders will be induced to borrow more from banks so as to expand their business. Borrowing from banks will lead Continue reading