Posts Tagged: "Economics Concepts"

Objectives of Fiscal Policy

Posted by admin on January 21, 2013 in Managerial Economics / No Comments

By fiscal policy we mean, the government’s tax efforts, public expenditure and public borrowing. Through these the government can effectively encourage consumption, investment and savings habits and also restrict them. For example, suppose there is inflation in a country. Inflation implies that the people have high purchasing power and so they demand goods. To curb this, the government may raise the personal tax and also the corporate tax. Similarly, by altering its expenditure on various public projects, the government would be able to influence the prevailing economic condition. Public borrowing involves government issuing bonds and encouraging common public and other institutions to buy them. By this, the government would be able to bring down the level of purchasing power in the economy and control the inflation.

The following are the objectives of fiscal policy:

Maximization of the aggregate saving is the first objective. Tins are achieved by encouraging people to reduce the current and future consumption. Specifically the attempt is to bring down and control the conspicuous consumption of the rich people.

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Economic Policies to Control Inflation

Posted by admin on January 15, 2013 in Managerial Economics / No Comments

Inflation has to be controlled, otherwise the extent of damage done to the economy will be something substantial and the economy would take a long time to recover from the effects of inflation. In this direction of control of inflation, the following are the theoretical measures available. These measures could be classified into three groups viz. Monetary measures, Fiscal measures and Other measures.

1. Monetary Measures

Monetary measures are steps taken by the Central bank of a country as the head of the monetary system. These measures are usually refereed to as the, quantitative credit controls and qualitative credit controls. The former include bank rate, open market operations and the variable reserve ratio. The, latter include margin requirements, moral suasion, direct action, control through directives, consumer credit regulation or rationing, publicity, etc.

Quantitative Credit Controls: Bank rate is the first, measure to curb credit creation activity of the commercial banks, as during inflationary period the volume of money supply has to be reduced.

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Duality between Production Function and Cost Function

Posted by admin on January 8, 2013 in Managerial Economics / No Comments

Production functions and cost functions are the cornerstones of business and managerial economics. A production function is a mathematical relationship that captures the essential features of the technology by means of which an organisation metamorphoses resources such as land, labour and capital into goods or services such as steel or cement. It is the economist’s distillation of the salient information contained in the engineer’s blueprints. Mathematically, let Y denote the quantity of a single output produced by the quantities of inputs denoted (x1,…, xn). Then the production function f(x1,…,xn) describes how a given output can be produced by an infinite combinations of inputs (x1,.., xn), given the technology in use. Several important features of the structure of the technology are captured by the shape of the production function. Relationships among inputs include the degree of substitutability or complementarily among pairs of inputs, as well as the ability to aggregate groups of inputs into a shorter list of input aggregates. Relationships between output and the inputs include economies of scale and the technical efficiency with which inputs are utilized to produce a given output.…

Balance of Payments (BoP)

Posted by admin on January 3, 2013 in Managerial Economics / No Comments

The balance of payment is defined as a systematic record of all economic transactions between the residents of a country and residents of foreign countries during a certain period of time. Although the above definition of balance of payments is quite revealing certain terms used in the definition may require some clarification. The term’s systematic record does not refer to any particular system. However, the system generally adopted is double entry book-keeping system. Economic transactions include all such transactions that involve the transfer of title or ownership. While some transactions involve physical transfer of goods, services, assets and money along with the transfer of title while other transactions do not involve transfer of title. For example, suppose that a subsidiary company of a foreign undertaking is operating in India and making profit. This company may pay all its profits as dividend to the shareholders abroad, or it may, alternatively reinvest its profit in India instead of paying dividends to its parent company abroad.…

Cost Reduction in Managerial Economics

Posted by admin on January 2, 2013 in Managerial Economics / No Comments

The Institute of Cost and Works Accounts of London has defined cost reduction as “the achievement of real and permanent reductions in the unit costs of goods manufactured or services rendered without impairing their suitability for the use intended”. Thus, cost reduction is confined to savings in the cost of manufacture, administration, distribution and selling by eliminating wasteful and unnecessary elements from the product design and from the techniques and practices carried out in connection with cost control.

Cost Control and Cost Reduction

According to the Institute of Cost and Works Accounts, London, “cost control, as generally practiced, lacks the dynamic approach to many factors affecting costs, which determine the need of cost reduction.” For example, under cost control, the tendency is to accept standards once they are fixed and leave them unchallenged over a period. In cost reduction, on the other hand, standards must be constantly challenged for improvement. And there is no phase of business, which is exempted from the cost reduction.…

Determinants of Demand

Posted by admin on January 1, 2013 in Managerial Economics / No Comments

The knowledge of the determinants of market demand for a product or service and the nature of relationship between the demand and its determinants proves very helpful in analyzing and estimating demand for the product. It may be noted at the very outset that a host of factors determines the demand for a product or service. In general, following factors determine market demand for a product or service:

Price of the product
Price of the related goods-substitutes, complements and supplements
Level of consumers income
Consumers taste and preference
Advertisement of the product
Consumers expectations about future price and supply position
Demonstration effect or ‘bend-wagon effect’
Consumer-credit facility
Population of the country
Distribution pattern of national income.

These factors also include factors such as off-season discounts and gifts on purchase of a good, level of taxation and general social and political environment of the country. However, all these factors are not equally important. Besides, some of them are not quantifiable. For example, consumer’s preferences, utility, demonstration effect and expectations, are difficult to measure.

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