Firm Demand (company demand) denotes the demand for the product/s of a particular firm. While Industry demand means the demand for the product of a particular industry. An industry comprises all the firms or companies producing similar products which are quite close substitutes to each other irrespective of the differences in their brand names. To understand the relation between company and industry demand necessitates an understanding of different market structures. The demand curve of an individual firm is not the same as the industry or market demand curve except in case of monopoly. Monopoly is that market category in which there is only a single seller and therefore there is no difference between a firm and an industry. The firm is itself an industry and therefore the demand curve of the individual firm as well as the industry demand curve under monopoly will be the same and as we shall Continue reading
Economics Basics
Three Concepts of Poverty – Economic wellbeing, Capability, and Social Exclusion
Poverty – A Multidimensional Phenomenon Poverty has many faces, and multiple indicators are used to capture the different deprivations experienced by a population. This complex phenomenon is linked to economic wellbeing, capability, and social exclusion. Poverty is a major moral problem because of the suffering it causes and the disadvantages conferred to some population segments. It is defined as a persistent and debilitating social condition attributed to diverse causes that affect a person’s physical, mental, and emotional wellbeing. The complex nature of poverty means that multiple measures are used depending on a country’s priorities. 1. Economic Wellbeing Income and consumption are key quantifiable indicators of poverty in society. These variables measure economic wellbeing and contain absolute, relative, and subjective components. At the basic level is absolute poverty, which describes the lack of necessities needed for survival – shelter, clean water, and food. Here, the quality of survival is an important Continue reading
Expert Opinion Method of Demand Forecasting
In this method of demand forecasting, the firm makes an effort to obtain the opinion of experts who have long standing experience in the field of enquiry related to the product under consideration. If the forecast is based on the opinion of several experts then the approach is called forecasting through the use of panel consensus. Although the panel consensus method usually results in forecasts that embody the collective wisdom of consulted experts, it may be at times unfavorably affected by the force of personality of one or few key individuals. To counter this disadvantage of panel consensus, another approach is developed called the Delphi method. In this method a panel of experts is individually presented a series of questions pertaining to the forecasting problem. Responses acquired from the experts are analyzed by an independent party that will provide the feedback to the panel members. Based on the responses of Continue reading
Different Approaches to Profit in Managerial Economics
Profit is the reward which goes to organization as a factor of production for its participation in the process of production. Profits differ from other factor rewards in the following ways: Profit is a residual income left after the payment of contractual rewards to other factors of production. The entrepreneur while hiring other factors of production enters into contract with them. He pays wages to workers, rent for land and interest for borrowed capital and the residue or whatever is left is his profit. Thus profits become non-contractual in character. The various factors of production are rewarded even before the sale of the product and irrespective of its sales whereas profits accrue only after the product is sold. The rewards of other factors have been fixed. They do not fluctuate whereas profits go on fluctuating so much so that the entrepreneur bears the risk of even incurring losses which we Continue reading
Special Pricing Approaches Used in Business
A variety of approaches are employed by businessmen in setting prices. These approaches are not mutually exclusive but sometimes they complement or supplement one another. Some of them are: Intuitive Pricing: It is a psychological method of pricing in which prices are based on the ‘feel of the market’. The system is more subjective rather than objective in nature. Initially the price is estimated on the basis of cost plus method with flexible mark-up pricing. This method is fairly common. Experimental Pricing: It is a trial and error method of pricing. This method is widely used in pricing of new products especially at retail level. Initiative Pricing: In this method a firm decides to follow a price fixing policy of a price leader. Backward Cost Pricing: Certain industries target price as the starting point for strategic calculations. The selling price is determined first and by working backwards the firm arrives Continue reading
Deficit Spending- Meaning, Advantages and Disadvantages
Deficit spending is the amount the government consumes that overtakes revenue over a particular budget year. Globally, it is a system used by most governments for economic stability. Deficit spending can be of either positive or negative impacts depending on the country’s aim in applying it. If well-strategized, it can be of immense aid to rescue the economic growth; it benefits every person in that specific government by opening room for investors. Deficit spending takes place when the government consumes more than the revenues. The government uses deficit spending for economic growth by opening opportunities for private sectors. For example, the private sector can offer loans to people so that they can start their businesses. In deficit spending, the consumption rate is higher than the profit that the government acquires. Therefore, the government spends more than what is available in addition to having more needs. Deficit spending multiplies huge debts Continue reading