Economic analysis is of two types (a) Micro economic analysis and (b) Macro economic analysis Definition and Meaning of Micro Economics: According to E. Boulding, “Micro economics is the study of particular firm, particular household, individual price, wage, income, industry, and particular commodity.” In the words of Leftwitch, “Micro economics is concerned with the economic activities of such economic units as consumers, resource owners and business firms.” ‘Micro’ is a Greek word means ‘small’. Micro economic theory studies the behavior of individual decision-making units such as consumers’ resource owners, business firms, individual households, wages of workers, etc. It studies the flow of economic resources or factors of production from the resource owners to business firms and the flow of goods and services from the business firms to households. It studies the composition of such flows and how the prices of goods and services in the flow are determined. In this Continue reading
Economics Basics
Revenue Structure of a Firm under Monopoly
Monopoly is that market category in which a single seller dominates the market. There is only one producer (firm) and there are no substitutes for its product. Since under monopoly there is just one firm producing a particular product there is no element of competition. Besides in the absence of any other firm producing homogeneous product the firm itself constitutes the industry. Hence it is futile to make any effort to distinguish between a firm and an industry under monopoly. Under Monopoly, firm is itself an industry. The revenue structure under monopoly is bound to be different from that in case of a firm under perfect competition. Under perfect competition, the firm is a price-taker and not a price maker and its AR curve is horizontal denoted by perfectly elastic demand curve. But a monopolist is not a price-taker; he is price-maker. Continue reading
The Principle of Equity in Taxation
Taxation traces its origin to the ancient times as a major source of revenue needed for governance. Kingdoms, monarchies and even dynasties had an elaborate form of taxation imposed on their subjects to source funds that were used to run affairs of the government. These taxes were subjective and biased depending on those in power. Advancement in education led to important studies on the possible forms of taxation that reflected the aspirations and welfare of the people. Owing to this therefore, Adam Smith, accredited as the “Father of modern political Economy” carried out an extensive study in Public Finance seeking to give an in-depth analysis of taxation. Smith documented the findings in his book known as “Wealth of Nations” in 1776. It is in this book that Smith scripted the four maxims of taxation which were later globally adopted as the Canons of Taxation which are summarized as Equity, Certainty, Continue reading
Types of Unemployment
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
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