Money occupies a central position in our modern economy. Money is everywhere and for everything in the modern economic life. Money has become the religion of the day in the ordinary business of life. Every branch of economic activity in a money economy is basically different from what it would have been in a barter economy. Money has created a far reaching effect on all facets of economic activities; consumption, production, exchange and distribution, as also on public finance and economic welfare. Money and Consumption Money enables a consumer to generalize his purchasing power. It gives him command over a wide variety of goods. It enables him to canalize his purchasing power and get what he wants. In fact, it is money through its immense purchasing power that makes a consumer sovereign in a capitalist economy. The consumer’s sovereignty can be expressed through money spending. Money provides freedom of choice Continue reading
Economics Concepts
Revenue Structure of a Firm under Perfect Competition
One of the distinguishing characteristics of perfect competition is the presence of an infinite number of firms producing homogeneous product. The number of firms is so large that a single firm’s contribution to the total output of the product in the market is insignificant or microscopic. The firm under perfect competition can neither influence the price nor the output in the market. In fact, it has to take the going-market price, i.e. the price prevailing in the market as is determined by the forces of demand and supply. It is in this context that the firm under perfect competition is referred to as price-taker and not a price maker. The revenue structure of the firm under perfect competition is influenced by this characteristic of perfect competition. Let us assume that the price of the product X as determined in the market by the forces of Continue reading
The Role of Government in Environmental Protection
The final controlling authority in most of the issues related to environment is the government itself. For example, most of the thermal power plants are owned by the government and also only the government can build dams, roads, railways, etc. Industrial or any other related activity cannot start without the approval of the government. Therefore, the government has to apply various checks and controls so that the environment is managed properly. How can the government establish incentives that would lead industries to choose the efficient amount of pollution control in their own best interest, even if they do not face all the social costs of residual emissions? 1. Direct Regulation Direct regulation of polluting activity (i.e., setting a legal limit for pollution) frequently comes to mind. The government could, for example, simply limit the industry’s pollution to R units by decree. Direct regulation of this sort was popular in the Continue reading
Responsibilities of a Managerial Economist
Besides considering the opportunities that lie before a managerial economist it is necessary to take into account the services that are expected by the management. For this, it is necessary for a managerial economist to thoroughly recognize the responsibilities and obligations. A managerial economist can serve the management best by recognizing that the main objective of the business, is to make a profit on its invested capital. Academic training and the critical comments from people outside the business may lead a managerial economist to adopt an apologetic or defensive attitude towards profits. There should be a strong personal conviction on part of the managerial economist that profits are essential and it is necessary to help enhance the ability of the firm to make profits. Otherwise it is difficult to succeed in serving management. Most management decisions necessarily concern the future, which is rather uncertain. It is, therefore, absolutely essential that Continue reading
Economics of the Foreign Exchange Market
In a floating exchange rate regime the price of the dollar, like any other market-determined price, depends on the relevant forces of supply and demand. But what are the relevant forces of supply and demand in the foreign exchange market? To try to answer this question, let us consider, for illustration, the factors that determine the relationship between the Australian dollar and the Japanese yen. The Japanese require dollars to pay for their imports of goods and services from Australia and to fund any investment they may wish to undertake in this country. Assume that they obtain these dollars on the foreign exchange market by supplying (selling) yen in return. So the Japanese demand for dollars (mirrored by the supply of yen) is determined by the exports to Japan and our capital inflow from that country. On the other side of the market, the Australian demand for yen is determined Continue reading
Fiat Money – Meaning, Characteristics and Working
The term fiat money is used to define as any money declared by a government to be legal tender with no commodity backing. Legal tender simply means that there is a law requiring everyone to accept the currency in commerce. Besides, fiat money was state-issued money which is neither fixed in value in terms of any objective standard, nor legally convertible to any other thing that was demanded by someone else. In other word, fiat money is money without intrinsic value. In ancient times when money was not invented trade as a whole was on barter system. “Barter” basically means to pay for something you want with products or services instead of paying for what you want with money. Under this system, exchange only can take place between two persons only if each possesses the goods which the other wants. As an example, imagine you grow tomatoes and your neighbor Continue reading