The economists describe unemployment as a condition of jobless within an economy. Unemployment is lack of utilization of resources and it eats up the production of the economy. It can be concluded that unemployment is inversely related to productivity of the economy. Unemployment generally defined as the number of persons (It is the percentage of labor force depends on the population of the country) who are willing to work for the current wage rates in society but not employed currently. Unemployment reduces the long run growth potential of the economy. When the situation arises where there are more other resources for the production and no man power leads to wastage of economic resources and lost output of goods and services and this has a great impact on government expenditure directly. High unemployment causes less consumption of goods and services and less tax payments results in higher government borrowing requirements. The Continue reading
Economics Concepts
4 Important Types of Decentralization
The term “decentralization” embraces a variety of concepts which must be carefully analyzed in any particular country before determining if projects or programs should support reorganization of financial, administrative, or service delivery systems. Decentralization—the transfer of authority and responsibility for public functions from the central government to subordinate or quasi-independent government organizations and/or the private sector—is a complex multifaceted concept. Different types of decentralization should be distinguished because they have different characteristics, policy implications, and conditions for success. Types of decentralization include political, administrative, fiscal, and market decentralization. Drawing distinctions between these various concepts is useful for highlighting the many dimensions to successful decentralization and the need for coordination among them. Nevertheless, there is clearly overlap in defining any of these terms and the precise definitions are not as important as the need for a comprehensive approach. Political, administrative, fiscal and market decentralization can also appear in different forms and Continue reading
Deficit Spending – Meaning, Advantages, and Disadvantages
Deficit spending occurs when a shortage of financial resources in the federal budget arises. In the modern economic environment, the economies of many countries are associated with chronic budget deficits, i.e. exceeding budget spending over national incomes. Many economists correlate budget deficits with adverse impacts on economic development – the stimulation of inflation processes, the creation of barriers to economic growth, and negative social outcomes. However, a budget deficit is not necessarily an extremely negative phenomenon, and it is argued that budget deficits can provoke the revival of national economic activity. Money creation is considered a traditional method of budget balancing. The emissive method of covering budget deficits implies the increase in monetary volumes, i.e., the government issues extra money, which is used to cover excess expenditures. The major advantage of this method is the growth of money supply that is interrelated with the increase in the aggregate demand and Continue reading
Alternative Objectives of Business Firms
The traditional theory does not distinguish between owners and managers’ interests. The recent theories of firm, which are also called managerial and behavioral theories of firm, assume owners and managers to be separate entities in large corporations with different goals and motivation. In this section, some important alternative objectives of business firms, especially of large business corporations are also discussed. 1. Baumol’s Hypothesis of Sales Revenue Maximization According to Baumol, “maximization of sales revenue is an alternative to profit maximization objective“. The reason behind this objective is to clearly distinct ownership and management in large business firms. This distinction helps the managers to set their goals other than profit maximization goal. Under this situation, managers maximize their own utility function. According to Baumol, the most reasonable factor in managers utility functions is maximization of the sales revenue. The factors, which help in explaining these goals by the managers, are following: Salary and other earnings of managers are more closely related to seals revenue than to Continue reading
Conditions and Forms of Price Discrimination
In today’s economic conditions in which the markets being far from full competitive state resulted the firms functioning in this market to become more or less a price-maker. For this reason, one of the ways for the firms that aim to increase the total income thus the total profit can use is, to implement different pricing for consumers with different specialties instead of applying the same pricing for all the consumer groups. Because the consumers having different income levels, taste and choice cause them to have a desire to pay different price for the product in question. One of the pricing strategies foresees different pricing for different consumer groups is price discrimination. The implementation of price discrimination will bring the firm that aims to maximize the profit in an advantageous position in the market. This advantage, generated from the desire of consumers that have different taste and income who are Continue reading
Gaps between Theory of the Firm and Managerial Economics
The theory of the firm is a body of theory, which contains certain assumptions, theorems and conclusions. Theory of the firm states that firms (corporations) exist and make decisions in order to maximize profits. These theorems deal with the way in which businessmen make decisions about pricing, and production under prescribed market conditions. It is concerned with the study of the optimization process. For optimality to exist profit must be maximized and this can occur only when marginal cost equals marginal revenue. Thus, the optimum position of the firm is that which maximizes net revenue. Managerial economics, on the other hand, aims at developing a managerial theory of the firm and for the purpose it takes the help of economic theory of the firm. However, there are certain difficulties in using economic theory as an aid to the study of decision-making at the level of the firm. This is because Continue reading