The basis of the European Monetary Union was to build a united Europe after the World War II. This was initiated by when the European nations created the European Coal and Steel community, with a view to freeing trade in these two sectors. The pricing policies and commercial practices of the member nations of this community were regulated by a supranational agency. In 1957, the Treaty of Rome was signed by Belgium, France, Germany, Italy, Luxemburg and the Netherlands to form the European Economic Community (EEC), whereby they agreed to make Europe a common market. While they agreed to lift restrictions on movements of all factors of production and to harmonize domestic policies, the ultimate aim was economic integration. The EEC achieved the status of a customs union by 1968. In the same year, it adopted a Common Agricultural Policy (CAP), under which uniform prices were set for farm products Continue reading
International Economics
National Income Statistics: Meaning and Uses
What is National Income Statistics? According to most dictionaries, national income is literally the total amount of money earned by a certain country. But in order to calculate the total funds and asset of the country, National Income Statistics are used, which are basically a set of rules, techniques and calculation to measure the total value of final goods and services produced. However, The National Income Statistics are only valid to calculate the national income of a country in a year. The Uses of National Income Statistics Like every other calculations, The National Income Statistics also have their own uses. The National Income Statistics are very important to the development of a certain country as it is the result of hard works done in a year to contribute in the enhancement of a certain country. Firstly, as we all know money and riches usually determines the standard of living of Continue reading
Trade Theory of Independence, Interdependence and Dependence
Independence — Interdependence — Dependence Theory of International Trade tries to read trade patterns and policies of countries based on their degree of independence or dependence or interdependence on rest of the world. See this is a continuum: Independence — Interdependence — Dependence. The polar extremes are Independence at one pole and Dependence at the other. Independence stops trade, while dependence boosts trade. Independence: Independence is being self-reliant. Well one cannot be self-reliant. Yet one country may choose to be independent and the cost of such obstinacy is self-denial of life’s luxuries, comforts and necessities that can be afforded without difficulty. It may be a government policy to remain independent. This austerity could cost the country heavily. Hence governments plan independence sans difficulty for citizens. Few countries in the world maintain a vast reserve of essential minerals and even don’t touch own oil fields, so that in future if foreign Continue reading
Cournot’s Duopoly Model – Explanation with Example
In economics, organizations that operate in oligopolies markets compete by trying to steal market shares from one another. Therefore, instead of competing by lowering prices, the kinked demand curve points to an understanding that the strategy does not work since every organization reduces costs. Companies utilizing this strategy often compete using a factor directly affecting profit and hence the quantity being sold. The Cournot’s model finds application when organizations produce standardized or identical products and, thus, do not collude. Duopolies, on the other hand, operate by the understanding that companies compete by the produced quantity. The assumption by the Cournot’s duopoly model is that two organizations move simultaneously, having similar market demand perspectives and having good knowledge of the cost functions of each rival. With this, firms choose how to maximize profit through their output based on the belief that rival organizations make similar choices. For the U.S., the decision Continue reading
Mercantilism Theory of International Trade
The mercantilists proposed Mercantilism theory of international trade. They were a group of economists who preceded Adam Smith. The foundations of economic thought between 1500 and 1800 were based on mercantilism. Mercantilists believed that the world had a finite store of wealth; therefore, when one country got more, other countries had less. Mercantilists restricted imports and encouraged or subsidized exports as a conscious policy to make their citizens better off. Mercantilists judged the success of trade by the size of the trade balance. Mercantilism was a sixteenth-century economic philosophy that maintained that a country’s wealth was measured by its holdings of gold and silver. This required that the countries to maximize exports and minimize imports. The logic was transparent to sixteenth-century policy makers that if foreigners bought more goods from us than we bought from them, then the foreigners had to pay us the difference in gold and silver, enabling Continue reading
The SCP Framework – Structure Conduct Performance Framework
The origin of the SCP (Structure-Conduct-Performance) paradigm can be traced to the work of the Harvard economist Edward Mason in the 1930s. It was popularized during 1930-60 with its empirical work involving the identification of correlations between industry structure and performance. This is a paradigm that is foundational to industrial organization economics, consistent with the positional view of strategy, as opposed to the resource-based view of strategy. There are two competing hypotheses in the SCP paradigm: the traditional “structure performance hypothesis” and “efficient structure hypothesis”. The structure performance hypothesis states that the degree of market concentration is inversely related to the degree of competition. This is because market concentration encourages firms to collude. The efficiency structure hypothesis states that performance of the firm is positively related to its efficiency. This is because market concentration emerges from competition where firms with low cost structure increase profits by reducing prices and expanding Continue reading