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
Economics Principles
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
Cashless Economy – The Road Towards a Cashless World
A cashless economy is a system where payments are made by electronic means rather than using cash or check to pay for goods or services. In an economy that is “cashless”, a person would pay with plastic methods like credit cards, debit cards, or smart cards. This type of transaction electronically moves money from one account to another rather than using the traditional forms of exchanging printed currency or checks. Woodfords Model of Cashless Economy There has been much debate over Woodford’s model of a cashless economy by many experts in the field of economics. Most experts believe that although some of the ideas brought forth make sense, the model is still incomplete because, in real-world economics, central banks can affect nominal interest rates. In Woodford’s model, he assumes that this does not relate to the real-world economy. Woodford’s argument is that banks have committed themselves to straightforward objectives to Continue reading
Important Types of Price Elasticity of Demand
Generally, consumers and sellers react differently in the market in response to a given change in the price of some products or services. In most cases, especially where the goods produced are elastic, when the prices of such commodities increase, customers counter the adjustment by lowering the quantity of the goods they consume. Similarly, if the cost decreases, buyers are likely to purchase a good volume of the product being offered. In other words, the consumption of the goods moves in the opposite direction from the prices. The products that portray such behavior are mainly consumer durables that customers can postpone their usage when the prices increase too high. For instance, assuming the cost of a car increases, the buyer may opt not to buy the product, thus reducing the number of items sold significantly. By understanding the concept of price elasticity of demand, such as various types and critical factors Continue reading
Process Costing and Job Costing
Management accounting uses several costing techniques. Costing techniques are very important to the business management because they help them make sound decisions for the company. They also help companies keep track of the costs that they incur in the production process. Process costing and job order costing are two types of costing techniques that are have a similarity that they both analyze the costs that are incurred by the organization. Though these methods can be used to analyze costs, they differ in their approach. Process Costing This is a costing technique that is used in finding costs in homogeneous or products that are uniform. This technique makes averages of costs for all units to make per unit costs. Work in process account is used to track the process costs. Through this system, a continuous manufacturing process is used to produce identical goods. Computation Procedures for Process Costing Manufacturing costs are Continue reading
What is a Circular Economy?
The term circular economy (CE) has both a linguistic and descriptive meaning. Linguistically it is an antonym of a linear economy. A linear economy is one defined as converting natural resources into waste, via production. Such production of waste leads to the deterioration of the environment in two ways: by the removal of natural capital from the environment (through mining/unsustainable harvesting) and by the reduction of the value of natural capital caused by pollution from waste. And the word circular has a second, inferred, descriptive meaning, which relates to the concept of the cycle. There are two cycles of particular importance here: the biogeochemical cycles and the idea of recycling of products. By circular, an economy is envisaged as having no net effect on the environment; rather it restores any damage done in resource acquisition while ensuring little waste is generated throughout the production process and in the life history Continue reading