The population of an economy is divided into two categories, the economically active and the economically inactive. The economically active population (labor force) or working population refers to the population that is willing and able to work, including those actively engaged in the production of goods and services (employed) and those who are unemployed. Whereas, unemployed refers to people who are willing and a capable of work but are unable to find suitable paid employment. The next category, the economically inactive population refers to people who are neither working nor looking for jobs. Examples include housewives, full time students, invalids,those below the legal age for work, old and retired persons. Unemployment is of different types. The important types of unemployment are: Structural unemployment: This is a type of unemployment caused mainly by the change in the development strategy adopted by an economy. For example, suppose a country basically agricultural in Continue reading
Economics Basics
Effects of Black Money on Economy
Black money is generated due to the following reasons: The people do not pay their taxes. Even if they pay taxes, they are not in correct proportions to their incomes. The tax evasions by corporate and industrial houses are to the tune of billions of rupees. These firms are able to make clever usage of the income tax rules and hence, they save taxes. This tax evasion leads to the generation of black money. The black money is earned by gifts, hawala transactions and illegal foreign exchange deals. These deals are not scrutinized by the government simply because these are without any documentary evidences. The procedures of over billing or under billing and exaggeration of expenses lead to the generation of black money. The sale and purchase of assets also lead to the generation of black money. The value of the property is shown to be very low in the Continue reading
Discounting Principle in Managerial Economics
One of the fundamental ideas in economics is that a dollar tomorrow is worth less than a dollar today. This seems similar to the saying that a bird in hand is worth two in the bush. A simple example would make this point clear. Suppose a person is offered a choice to make between a gift of 100$ today or 100$ next year. Naturally he will choose the 100$ today. This is true for two reasons. First, the future is uncertain and there may be uncertainty in getting 100$ if the present opportunity is not availed of. Secondly, even if he is sure to receive the gift in future, today’s 100$ can be invested so as to earn interest, say, at 8 percent so that. one year after the 100$ of today will become 108$ whereas if he does not accept 100$ today, he will get 100$ only in the Continue reading
Why Competition may Sometimes be Helpful?
Market structures refer to a total number of businesses in the market, their share and extent of competition in those businesses. Competition is a crucial aspect which cannot be overlooked in business. This is because human needs are many but resources for satisfying them are limited. As a result, firms have to compete to ensure they provide required services at certain cost. The major objective to operate a successful business is to earn a profit. In this process, resources are deployed to generate profits and thus businesses have to allocate resources strategically to ensure maximum benefits are achieved. In some business models, competition is steep while in others, they serve as a monopoly. Monopoly markets exist where there is no competition from the outside. The business operates solely in the market and thus they can control the flow of goods and services. To prevent customer exploitation, the government has to Continue reading
Concept of Economies and Diseconomies of Scale in Managerial Economics
In the process of production a firm enjoys several advantages or experience several disadvantages which are either the result of the scale of operation or due to the location of the firm. The advantages and disadvantages thus experienced are reflected in the cost of production. The average cost of production is favorably affected when a firm starts enjoying economies, whereas the average cost begins to rise when the firms experience diseconomies. Those advantages or disadvantages that accrue to a firm from within, as a result of its scale of operation are summarily referred to as Internal economies and diseconomies, whereas those advantages or disadvantages which come to the firm from outside and are experienced by the industry as a whole mainly due to localization are referred to as External economies and diseconomies respectively. Internal Economies Internal Economies are those advantages which a firm enjoys from within itself by way of Continue reading
Direct Costs, Indirect Costs and Overhead Costs
Direct Costs In finance, direct costs are those costs that are associated with a specific project, department, or activity. Sometimes referred to as hard costs, expenses of this type are found with just about every type of business activity, beginning with research and development, moving through sales and marketing campaigns, and into the production of different types of goods and services. A direct cost is often some type of fixed expense, but there are some situations where a variable expense may also fall into this category. The key to understanding what does and does not constitute direct costs is to identify costs that apply only to a specific project, and have nothing to do with any other activity that is taking place concurrently. In order to be a true hard cost, the expense must be for resources that benefit that one project. For example, if the project is to construct Continue reading