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
International Economics
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
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
Effect of Portfolio Capital Flows in an Economy
The notion that one can make inferences about the characteristics of financial flows by just observing their label is not new in economic. There is much convention wisdom that show capital flows reflect speculative, unstable behavior while flows reflect evaluations of long run profitability and are based on fundamental economic condition. The flows of funds approach used by many central banks and others for a analysis of the domestic economy developments is based on labels which are deemed meaningful. This view has also been an important part of the traditional analysis of international finance for many years. In fact, the structure of balance of payments accounts reflects an implicit theory that different types of capital flows have different economic implications. For example, the distinction between short-term “hot money” and long-term capital flows undoubtedly reflects the view that short-term capital movements are speculative and reversible while long-term capital flows are based Continue reading
Factor Proportions Theory of International Trade
Almost after a century and a quarter of the classical version of the theory of international trade, two Swedish economists, Eli Heckscher and Bertil Ohlin, propounded a theory that is known as the factor endowment theory or the factor proportions theory. In fact, it was Eli Heckscher (1919) who mooted the notion of a country’s comparative advantage (disadvantage) based on relative abundance (scarcity) of factors of production. Later on, his student, Bertil Ohlin (1933) developed this notion of relative factor abundance into a theory of the pattern of international trade. Factor Proportions theory of international trade explains that in a two-country, two-factor, and two-commodity framework different countries are endowed with varying proportions of different factors of production. Some countries have large populations and large labour resources. Thus, a country with a large labour force will be able to produce the goods at a lower cost using a labour intensive mode Continue reading
Sectoral Demand-Shift Theory of Inflation
Under demand-pull inflation, we have shown how expansion in aggregate demand without a proportionate increase in the supply of goods and services leads to an inflationary situation. However, it is not necessary to have a general increase in demand to bring about inflationary pressure. Sometimes, the increase in demand may be confined to some sector of the economy and this increase in demand and the consequent rise in the price in a particular sector may spread to other sectors. Suppose the demand for agricultural goods rises because of inadequate supplies of these goods, there would be a consequent rise in the price of agricultural goods. Thus, the rise in prices spreads to all other sectors in the economy, through rise in the prices of raw materials and wages. The rise in prices in the agricultural sector may push up prices in the industrial sector. Therefore, the inflationary rise in the Continue reading