Gross National Product (GNP) may be defined as the aggregate market value of all final goods and services produced during a given year. The concept of final goods and services stands for finished goods and services, ready for consumption of households and firms, and exclude raw materials, semi-finished goods and such other intermediary products. More clearly, all sales to households, business investment expenditure, and all government expenditures are obviously regarded as final goods. In an open economy (an economy which has economic relationship with the rest of the world in the form of trade, remittances, investment etc-all economies are open economies), Gross National Product (GNP) may be obtained by adding up: The value of all consumption goods which are currently produced The value of all capital goods produced which is defined as Gross Investment. Gross Investment, in the real sense, here implies the increase in inventories plus gross products of Continue reading
Economics Basics
Determinants of Demand
The knowledge of the determinants of market demand for a product or service and the nature of relationship between the demand and its determinants proves very helpful in analyzing and estimating demand for the product. It may be noted at the very outset that a host of factors determines the demand for a product or service. In general, following factors determine market demand for a product or service: Price of the product Price of the related goods-substitutes, complements and supplements Level of consumers income Consumers taste and preference Advertisement of the product Consumers expectations about future price and supply position Demonstration effect or ‘bend-wagon effect’ Consumer-credit facility Population of the country Distribution pattern of national income. These factors also include factors such as off-season discounts and gifts on purchase of a good, level of taxation and general social and political environment of the country. However, all these factors are not Continue reading
The Concept of Supply
Like the term ‘demand’, the term ‘supply’ is also often misused in the ordinary language. Supply of a commodity is often confused with the ‘stock’ of that commodity available with the producers. Stock of a commodity, more or less, will equal the total quantity produced during a period less the quantity already sold out. But we know that the producers do not offer whole of their stocks for sale in the market, a part of industrial produces is kept back in godowns and is offered for sell in the market when it can fetch better prices. In other words the amount offered for sale may be less (or at the most in rare circumstances equal to) than the stocks of the commodity. The term ‘supply’ shows a relationship between quantity and price. By supply we mean various quantities of a commodity which producers will offer for sale at a particular Continue reading
Different Market Structures and Pricing Strategies
In the world of business and economics, marketing structures are considered to be the structures that assist with connecting buyers, sellers, products and services to one another. Some of the elements that market structures connect and work with are production levels, different forms of competition, different forms of products and services, ease of entry and exit from the marketplace, buyers, sellers, and even the agreement between particular agents. Depending on what type of market structure a company is either choosing to use, or is forced to use, will determine what type of pricing strategy they are going to need to utilize. To look further into the different pricing strategies, there needs to be an understanding of the basic market structures, which are perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect Competition Perfect competition occurs when there are many buyers and sellers, no particular barriers to entry or exit, and also Continue reading
Role of Government in Economic Development
Any country’s the prosperity and obstacles of economic growth results from activities of government. That means, government plays important role in economic activities. In free market economies government plays important activities. It has to perform role to prevent market failure. As we know that market does not yield economically efficient outcome every time as the result market fails to operate. In free market economy government has designed activities to stimulate and assist private enterprise and to regulate or control business practices so that their operations are consistent with the public interest. There are various forms of government regulation especially to regulate the activities of private firms. Industrial products are subject to Operating Regulations, governing plant and pollutant emission, product packaging and labeling, worker safety and health etc. Banks and Financial Institutions are subject to Financial Regulations, both the government as well as the control made by the Central Bank for Continue reading
Market Failure and Government Intervention
Market failure refers to a market that fails to provide efficient outcomes for the society. In other words, market works efficiently only when there exist perfect competition or when exclusion principle could be applied in the free market. Exclusion principle requires that, those who do not pay for as goods should be excluded from its consumption and those who derive any benefit from goods should bear its cost. In free market economy the main responsibility of the government is to prevent the market from failure. Market failure can be summarized in two ways: Market failures due to incentive or incentive failure Market failures due to structure or structure failure 1. Market failure due to incentive or incentive failure The market failure due to the presence of externalities is known as incentive failure. The free market mechanism does not function effectively when exclusion principle is not applicable. Exclusion principle requires that, Continue reading