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
Economics Principles
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
Cost Analysis of Multiple Products
Although, most modern firms make several products, Economic Theory has been developed on the premise that each firm produces only one product. The reasons for such inadequate premises are found partly in the historical origins of theory and partly in the simplicity of theoretical analysis when it is confined to production of just one single product. In many manufacturing enterprises two or more different products emerge from common production process and common raw-material used. Production of multiple product has almost become the rule. When two or more different products emerge from a single common production process and a single raw material, they get identified as separate products only at the end of common processing which is called the ‘Split of Point’. The costs that that have been incurred up-to the split of point are common costs. The common costs cannot be traced to the separate products. Some common costs are Continue reading
Pure Competition
In pure competition, the firm has to accept the given market price. At this given price, it can sell all the products, which it desires but at any higher price, it cannot sell anything. If the market price is below its cost, it has to either take the loss or withdraw from the market. As a result, any single firm in a purely competitive situation has to adjust its production and sales policies to the given market price. However, the market prices arc determined through the mutual consent of all the individual competitive buyers and sellers together. But any individual firm has no control over the price. Since a purely competitive seller has no control over the price at which he sells, his average marginal revenue schedule is infinitely elastic. In perfect competition, marginal revenue is equal to the average revenue, because every unit is sold at the same market 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