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 Concepts
Business Competition – Meaning and Types
Meaning of Competition To a particular business, competition usually refers to firms that market similar or substitutable products in the same geographic area. In general, the term business competition refers to the rivalry among businesses for consumer dollars. For example, the manager of a fast food outlet in an airport views all other fast food outlets near the airport as competition but probably does not think fast food outlets in other geographic areas as competition. In general, all the fast food outlets near the airport compete for passengers’ dollars. In developing and implementing a marketing program, an organization must consider the types of business competition in its markets and assess the actions of its competition. Types of Business Competition The number of organizations that sell a product may affect the strength of competition. When there are many business selling a particular product, for example, price considerations and product differences are Continue reading
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
Why Oligopoly is a More Common Type of Market Structure Compared to Perfect Competition
Perfect competition is an ideal model and so it is difficult to find markets that have all these characteristics. There are some markets in the real world that approximates perfect competition. Examples of such markets are farming, the stock exchange market and the foreign currency market. These markets possess some of the characteristics of perfect competition as explained in part (a). However, even in such markets, some of the characteristics are hard to fulfil. For instance, buyers and sellers may not be price takers. In the stock exchange market, there are some individuals or institutions that can influence the price of shares through their large holdings of a particular company’s shares. The product is also not homogenous if stock of different companies are considered., Thus, if they were to sell their shares, price will fall. Knowledge is not perfect either. Although buyers and sellers do have easy access to information 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