Econometric model building holds considerable promise as a method of forecasting demand. The best starting point towards an understanding of the basis of econometric forecasting is regression analysis. But the difficulty with regression analysis is that it is used to forecast a single dependent variable based on the value and the relations between one or more independent variables and each of these independent variables is assumed to be exogenous or outside the influence of the dependent variable. This may be true in many situations. But unfortunately, in most broad economic situations an assumption that each of the variable, is independent is unrealistic. For example, let us assume that demand is a function of Gross National Product (GNP), price and advertising. In regression terms we would assume that all three independent variables are exogenous to the system and hence are not influenced by the level of demand itself or by one Continue reading
International Economics
Meaning of Profit in Economics
Profit means different things to different people. The word ‘profit’ has different meanings to business, accountants, tax collectors workers and economists. In a general sense, profit is regarded as income of the equity shareholders. Similarly wages getting accumulated of a labor, rent accruing to the owners of any land or building and interest getting due to the investors capital of a business, are a kind of profit for labors, land owners and investors. To an accountant, profit means the excess of revenue over all paid out costs including both manufacturing and overhead expenses. It is much similar to net profit. In economics, profit is called pure profit, which may be defined as a residual left after all contractual costs have been met, including the transfer costs of management insurable risks, depreciation and payment to shareholders, sufficient to maintain investment at its current level. Profit is usually perceived as earnings and Continue reading
Flat Tax System
An alternative to the global tax system or comprehensive taxation system is the so called flat tax system. Herewith a flat proportional taxation for all net income types, capital, labor and other income is installed. This taxation system does not consider the taxpayers ability to pay taxes but sets a flat level for all income types. Some east European countries (Russia and Slovakia) have installed this taxation system. Russia replaced its progressive taxation system with a single flat tax rate of 13%. Under a pure flat tax without deductions, companies could simply, every period, make a single payment to the government covering the flat tax liabilities of their employees and the taxes owed on their business income. For example, suppose that in a given year, XYZ Company earns a profit of 3 million, pays 2 million in salaries, and spends an added 1 million on other expenses the IRS deems Continue reading
Trade Protectionism in International Business
Trade Protectionism is the economic policy of restraining trade between nations, through methods such as high tariffs on imported goods, restrictive quotas, and anti-dumping laws in an attempt to protect domestic industries in a particular nation from foreign take-over or competition. This contrasts with free trade, where no artificial barriers to entry are instituted. Trade Protectionism has frequently been associated with economic theories such as mercantilism, the belief that it is beneficial to maintain a positive trade balance, and import substitution. There are two main variants of trade protectionism, depending on whether the tariff is intended to be collected (traditional protectionism) or not (modern protectionism). Modern protectionism: In the modern trade arena many other initiatives besides tariffs have been called protectionist. For example some economists see developed countries’ efforts in imposing their own labor or environmental standards as protectionism. Also, the imposition of restrictive certification procedures on imports are seen Continue reading
Max Weber and Postmodernism Theory Concepts
It is not difficult to argue that Max Weber has outlived all his competitors in the classical tradition. His ideas have inspired scores of sociologists in a host of areas for more than sixty years. The contemporary vitality of these ideas is in no small measure due to the fact that he is the most prominent advocate of modernism and that he has both resisted and justified some of postmodernism’s most convincing criticisms of modern social science and society. When analysing the statement that “the fate of our times is characterized by rationalization, intellectualization and about all by the disenchantment of the world” one must look into all aspects of the 3 ways of thinking that Weber has described; rationalism, intellectualization and disenchantment. When focusing solely on the rationalism that Max Weber talks speaks about we can see a connection to the way of thinking he described in his writing Continue reading
Foreign Direct Investment and the Business Environment
Direct investment abroad is a complex venture. As distinct from trade, licensing or investment, Foreign Direct Investment (FDI) involves a long-term commitment to a business endeavor in a foreign country. It often involves the engagement of considerable assets and resources that need to be coordinated and managed across countries and to satisfy the principle of successful investment, such as sustainable profitability and acceptable risk/profitability ratios. Typically, there are many host country factors involved in deciding where an FDI project should be located and it is often difficult to pinpoint the most decisive factor. However, it is widely agreed that FDI takes place when three sets of determining factors exist simultaneously; the presence of ownership-specific competitive ages in a transnational corporation (TNC), the presence of locational advantages in a host country, and the presence of superior commercial benefits in an intra-firm as against an arm’s-length relationship between investor and recipient. The Continue reading