Managerial Economics

Managerial Economics generally refers to the integration of economic theory with business practice. It deals with the use of economic concepts and principles of business decision making. Managerial Economics is thus constituted of that part of economic knowledge or economic theories which is used as a tool of analyzing business problems for rational business decisions. Managerial economics can be viewed by most modern economists as a practical application of economics theory in using effectively the firms scarce resources.

Pigovian Tax – Meaning and Definition

Neo-classicals uphold perfect competition as the ideal state of the market. But in truth, the economy is fraught with market failures. Therefore, we need government interference to correct many of these market failures. Pigovian Tax (also spelled  Pigouvian tax) imposed by the government is one such course of intervention. It helps to curb negative externalities (e.g. pollution) and reduce the burden on the society caused by the externalities (social costs of production and consumption). Moreover, it attacks over-consumption, bringing it closer to the socially optimal level of production and/or consumption.

What is Pigovian Tax?

Pigovian tax is a kind of tax, which is levied to correct a negative cost that is created by the actions of any business firm, but that is not considered in a firm’s private costs or profits.… Read the rest

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Impact of Banking Regulations on Financial Intermediation

Banks have all along played the role of financial intermediaries by channelizing funds primarily from the household sector to producing sector and the efficiency and smoothness with which such intermediation is done by banks are one of the prime parameters that determine the economic efficiency and consequent industrial and material progress of a society. Financial intermediation has a cost and that cost is reflected in bank rates and overhead expenditures incurred by banks. Bank rates, however, are not determined in isolation or only from the perspective of profit maximization by the banking sector. These rates are impacted by many other economic and statutory issues pertaining to a particular economy and such issues may vary widely from economy to economy depending upon the administrative attitude towards matters of equanimity in various sectors of the economy, especially the banking sector itself.… Read the rest

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Price Discrimination in Managerial Economics

In today’s economies where product and service competition is dense, to sell products and services to consumers in the way as expected by the company has become harder but at the same time necessary compared to the past. It has become unavoidable for the firms to use various pricing strategies alongside with the classical selling strategies to reach this goal.

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.… Read the rest

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Methods of Internationalization

In the process of globalization, a firm operates their activities globally and the internationalization process is one of the primary sites of attention. The changes in the technology in the fields of telecommunications and computer lessen the costs of cross border operations and encourage firms to engage in transnational production activities. Internationalization is a sequential process where firms internalize their economic activities characterized in terms of aggressiveness and motivated by either internal or external triggers or a combination of both. It is one of the key strategic decisions for firms to maximize or at least sustain profits to survive in the world of uncertainty and complexity.… Read the rest

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Theoretical Perspectives on Firm Internationalization

After the World War II, there has been rapid growth in international trade in both goods and services, resulting in various transactions across national borders for the purpose of satisfying the needs of individuals and organisations. The result of this global competition has forced organisations to expand their business by finding out new markets at home and foreign countries making them ‘Transnational firms’. Transnational Corporations (TNC) is defined as a firm that has power to co-ordinate and control operations in more than one country, even if it does not own them. The significance of TNC lies mainly in its ability to co-ordinate and control different transactions within transnational production networks, ability to take advantage of distribution factors of production and ability to be flexible in locations.… Read the rest

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Modes of Transferring Capital or Funds from Savers to Borrowers

In economics, a financial market refers to a media that allows people to buy, sell, create and exchange financial securities such as share and bonds, commodities such as basic agricultural goods and precious metals, and other fungible items of value at low transaction costs and at prices that reflect the efficient-market.

Both general markets where many commodities are traded and specialized markets where only one commodity is traded exist in financial market. Markets work by placing many interested buyers and sellers in one media, thus making it easier for them to find each other. The financial markets can be divided into different types such as capital markets, commodity markets, money markets, insurance market and foreign exchange market.… Read the rest

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