A market can be defined as a place where the forces of demand and supply operate or where buyers and sellers can interact – directly or indirectly – to trade goods and services. This therefore means that marketing is the process of identifying, anticipating and satisfying consumer requirements effectively and profitably. The concept of marketing is basically to make profit by satisfying consumers in a particular location. In conclusion, the idea of a market and the concept of marketing can be utilized as the economic system of a country/state. Economic System can be defined as a refereed journal for the analysis of causes and consequences of the significant institutional variety prevailing among all developed, developing, emerging, and transition economies. It can also be defined as an organized way in which a state or nation allocates its resources and apportions goods and services in the national community. The major function of Continue reading
Economics Concepts
Activity Based Costing (ABC) – Advantages and Disadvantages
In the past, the vast majority of departments used direct labor hours as the only cost driver for applying costs to products. But direct labor hours is not a very good measure of the cause of costs in modern, highly automated departments. Labor-related costs in an automated system may be only 5 percent to 10 percent of the total manufacturing costs and often are not related to the causes of most manufacturing overhead costs. Therefore, many companies are beginning to use machine-hours as their cost-allocation base. However, some managers in modern manufacturing firms and automated service companies believe it is inappropriate to allocate all costs based on measures of volume. Using direct labor hours or cost-or even machine hours-as the only cost driver seldom meets the cause/effect criterion desired in cost allocation. If many costs are caused by non volume-based cost drivers, Activity Based Costing (ABC) should be considered Activity Continue reading
Types of Economic Systems
It has been already pointed out that the way in which the three basic economic questions are answered depends on the economic system which functions in a country. To understand how these answers differ among the economic systems, we should understand the different types of economic systems. Major Types of Economic Systems Economic systems may broadly be classified into three categories: Capitalism, Socialism and Mixed economy. A number of other types also emerged but all of them came close to any one of the above three types of economic systems. Let us now discuss the features, strengths and weaknesses of each one of these economic systems. 1. Capitalism Capitalism is an economic system based on the principle of free enterprise. Individual ownership of resources is an important feature. With control and command over resources, individuals can conduct any type of business. The object in such a system is to maximize Continue reading
Flexible v/s Fixed Foreign Exchange Rates
An exchange rate is simply the price of one currency in terms of another. The process by which that price is determined depends on the particular exchange rate mechanism adopted. In a floating rate system, the exchange rate is determined directly by market forces, and is liable to fluctuate continually, as dictated by changing market conditions. In a ‘fixed’, or managed rate system, the authorities attempt to regulate the exchange rate at some level that they consider appropriate. Such a system often seems appealing to those who are troubled by the uncertainties of the present, highly volatile, floating rate environment. But the choice of exchange rate regime involves considerations that extend beyond the stability or otherwise of currency prices. Exchange rates stability has always been the objective of monetary policy of almost all countries. Except during the period of great depression and world war II , the exchange rate have been Continue reading
Production Function in Managerial Economics
Definition of Production Function The technological relationship between inputs and output of a firm is generally referred to as the production function. The production function shows the functional relationship between the physical inputs and the physical output of a firm in the process of production. According to Samuelson, “The production function is the Technical relationship telling the maximum amount of output capable of being produced by each and every set of specified inputs. It is defined for a given set of technical knowledge.” According to Stigler, “The production function is the name given to the relationship between the rates of input of productive services and the rate of output of product. It is the economist’s summary of technical knowledge. In fact the production function shows the maximum quantity of output. Q, that can be produced as a function of the quantities of inputs X1, X2, X3…Xn. In equation form the Continue reading
Duality between Production Function and Cost Function
Production functions and cost functions are the cornerstones of business and managerial economics. A production function is a mathematical relationship that captures the essential features of the technology by means of which an organisation metamorphoses resources such as land, labour and capital into goods or services such as steel or cement. It is the economist’s distillation of the salient information contained in the engineer’s blueprints. Mathematically, let Y denote the quantity of a single output produced by the quantities of inputs denoted (x1,…, xn). Then the production function f(x1,…,xn) describes how a given output can be produced by an infinite combinations of inputs (x1,.., xn), given the technology in use. Several important features of the structure of the technology are captured by the shape of the production function. Relationships among inputs include the degree of substitutability or complementarily among pairs of inputs, as well as the ability to aggregate groups Continue reading