The term fiscal has been derived from the greek word fisc, meaning a basket to symbolize the public purse. Fiscal policy thus means the policy related to the treasury of the government. Fiscal policy is a part of general economic policy of the government which is primarily concerned with the budget receipts and expenditures of the government. All welfare projects are completed under this policy .It also suggests measures to control economic fluctuations which may become violent and create great upheavals in the socio-economic structure of the economy. It also outlines the influence of resource utilization on the level of aggregate demand through affecting the level of aggregate consumption and investment expenditure. Definitions of Fiscal Policy According to U. Hicks “Fiscal policy is concerned with the manner in which all the different elements of public finance, while still primarily concerned with carrying out their own duties, may collectively be geared Continue reading
Economics Basics
Roles of Managerial Economist in Business
A managerial economist can play a very important role by assisting the management in using the increasingly specialized skills and sophisticated techniques, required to solve the difficult problems of successful decision-making and forward planning. In business concerns, the importance of the managerial economist is therefore recognized a lot today. In advanced countries, large companies employ one or more economists. A managerial economist can contribute to decision-making in business in specific terms. Different roles of managerial economist in business as follows: Environmental Studies of a Business Firm An analysis and forecast of external factors constituting general business conditions, for example, prices, national income and output, volume of trade, etc., are of great significance since they affect every business firm. Certain important relevant factors to be considered in this connection are as follows: The outlook for the national economy, the most important local, regional or worldwide economic trends, the nature of phase Continue reading
Price Discrimination in Managerial Economics
In today’s economies where product and service competition is dense, to sell products and services to consumers in the way as expected by the company has become harder but at the same time necessary compared to the past. It has become unavoidable for the firms to use various pricing strategies alongside with the classical selling strategies to reach this goal. In today’s economic conditions in which the markets being far from full competitive state resulted the firms functioning in this market to become more or less a price-maker. For this reason, one of the ways for the firms that aim to increase the total income thus the total profit can use is, to implement different pricing for consumers with different specialties instead of applying the same pricing for all the consumer groups. Because the consumers having different income levels, taste and choice cause them to have a desire to pay Continue reading
Law of Substitution or Equi-Marginal Utility – Definition, Significance and Criticisms
The law of substitution is also known as the law of equi-marginal utility or the law of maximum satisfaction. This law was first developed by H.H Gossen. Therefore, this law is also known as second law of Gossen. Prof. Marshall has developed and given the present shape of this law. This law states that in order to get maximum satisfaction, a consumer should spend his limited income on different commodities in such a way that the last dollar spent on each commodity yield him equal marginal utility. The law of substitution is also known as “The Law Of Maximum Satisfaction” because the consumer can maximize his/her satisfaction by spending income in accordance with this law. It is called “The Law Of Substitution” because the consumer will go on substituting one commodity with higher marginal utility for another commodity with lower marginal utility till the marginal utility of each commodity is Continue reading
Limitations of Break Even Analysis
To the management, the utility of break-even analysis lies in the fact that it presents a picture of the profit structure of a business firm. Break-even analysis not only highlights the areas of economic strength and weaknesses in the firm but also sharpens the focus on certain leverages which can be operated upon to enhance its profitability. Through break-even analysis, it is possible for the management to examine the profit structure of a business firm to the possible changes in business conditions. There are some important limitations of break-even analysis, which are to be kept in mind while using break-even analysis. These limitations are as follows: When break-even analysis is based on accounting data, it may suffer from various limitations, such as negligence towards imputed costs, arbitrary depreciation estimates and inappropriate allocation of overhead costs. Break-even analysis, therefore, can be sound and useful only if the firm in question maintains Continue reading
Cost Reduction in Managerial Economics
The Institute of Cost and Works Accounts of London has defined cost reduction as “the achievement of real and permanent reductions in the unit costs of goods manufactured or services rendered without impairing their suitability for the use intended”. Thus, cost reduction is confined to savings in the cost of manufacture, administration, distribution and selling by eliminating wasteful and unnecessary elements from the product design and from the techniques and practices carried out in connection with cost control. Cost Control and Cost Reduction According to the Institute of Cost and Works Accounts, London, “cost control, as generally practiced, lacks the dynamic approach to many factors affecting costs, which determine the need of cost reduction.” In fact, cost control also known as cost management or cost containment; it controls the costs of the organization at the given level. Besides, cost control emphasis on ensuring that the cost does not exceed Continue reading