In a market economy, commerce and customers make a decision of their own decision what they will consume and manufacture, and in which conclusions on the allotment of those sources are without government interference. Hypothetically this denotes that the manufacturer is required to decide what to produce, how much to produce, what prices to set up for consumers for those productions, what to pay workers, and so on. These conclusions in a market financial system are impacted by the forces of competition, supply, and demand. This is frequently distinguished with a premeditated economy, where central government concludes what will be manufactured and in what amounts. A market economy is also compared with the mixed economy where there are market processes through the system of markets that is not completely free but under some state control that is not widespread enough to comprise a deliberate financial system. In reality, there is Continue reading
Economics Basics
The Diamond-Water Paradox in Economics
The concept of the value of goods was one of the most actively discussed topics by economists in the 18-19th century. In “A Study of the Nature and Causes of the Wealth of Nations,” published in 1776, Adam Smith voiced the question that would later become known as the diamond-water paradox. It sounded like this: “There is nothing more useful than water: but you can hardly buy anything with it… Diamond, on the contrary, has almost no use-value; but a very large number of other goods can often be obtained in exchange for it”. The classical economists Adam Smith and Karl Marx considered a product’s value concerning how it satisfies a human need. The price was associated with the effort and labor expended to meet a specific demand. Besides, classical economists used the concepts of use-value and exchange-value, which determine the nature and exchange value of products. Later, in the Continue reading
Keynesian View of Inflation
John Maynard Keynes, one of the most influential economists of the 20th century, relates inflation to a price level that comes into existence after the stage of full employment. While, the quantity approach emphasizes the volume of money to be responsible for rise in the price level. Keynes distinguishes between two types of rise in prices (1) rise in prices accompanied by increase in production, and (2) rise in prices not accompanied by increase in production. If an economy is working at a low level, with a large number of unemployed men and un-utilized resources then expansion of money or some other factors leading to an increase in demand will result not only in a rise in the price level but also rise in the volume of goods and services in an economy. This will continue until all unemployed men find employment and capital and other resources are more Continue reading
Government – Meaning and Roles
Government is one of humanity’s oldest and most important institutions. Since the early times, some kind of government has been an important source in the society. Every society needs some people to make and enforce decisions upon the society and the government refers to the process of exercising power in a group. Government generally means the public government as of a nation, state, province, country, city or village. Government affects the activity of every human in important ways. Form of government refers to the set of political institutions by which a government of a state or a country is organized. Each successive government is composed of a body of individuals who control and exercises control over political decision-making. Their function is to make and enforce laws and arbitrate conflicts. In some countries and states this group is often of hereditary class and in some of democracy, where political roles remain Continue reading
Techniques of Demand Forecasting
Broadly speaking, there are two approaches to demand forecasting– one is to obtain information about the likely purchase behavior of the buyer through collecting expert’s opinion or by conducting interviews with consumers, the other is to use past experience as a guide through a set of statistical techniques. Both these techniques of demand forecasting rely on varying degrees of judgment. The first method is usually found suitable for short-term forecasting, the latter for long-term forecasting. There are specific techniques which fall under each of these broad methods. Judgmental Approaches to Forecasting By their nature, judgment-based forecasts use subjective and qualitative data to forecast future outcomes. They inherently rely on expert opinion, experience, judgment, intuition, conjecture, and other “soft” data. Such techniques are often used when historical data are not available, as is the case with the introduction of a new product or service, and in forecasting the impact of fundamental Continue reading
Usage of Macroeconomics for Business Decisions
Decision making is an important job of corporate managers. They have to take decisions regarding the employment of land, labor, and capital in such a manner that output may be maximized at least possible cost. Hence, they are always in search of optimum combination of resources which would maximize corporate profit. Appropriate decision making is the strength of business. Success in business depends on proper and correct decision making. Location, scale of operation, quantum of resources to be employed, marketing etc are some of the important problems calling for decisions in business where macroeconomics may be applied for better results. Macro Economic Analysis Macroeconomics is concerned with the study of aggregate economic variables. It is concerned with the whole economy and studies the level and the growth of national income, the levels of employment, the level of private and government spending, the balance of payments, the consumption & the investment, saving functions Continue reading