Trade Cycle or Business Cycle Concept in Managerial Economics

Definition of Trade Cycle or Business Cycle

According to Keynes, “A trade cycle is composed of periods of good trade characterized by rising prices and low unemployment percentage, alternating with periods of bad trade characterized by falling prices and high unemployment percentage. “

Characteristics of Trade Cycles

From the above definition, it should be clear that trade cycle is the rhythmic fluctuations of the economy, that is, periods of prosperity followed by periods of depression. However, the waves of prosperity and depression need not always be of the same length and amplitude. Further, trade cycles varied tremendously in magnitude. While some have smaller cyclical fluctuations in economic activity, others have great intensity of fluctuations.… Read the rest

Hawtreys Monetary Theory of Trade Cycles

The British economist Ralph G. Hawtrey regards trade cycle as a purely monetary phenomenon. According to him, non-monetary factors like wars, earthquakes, strikes and crop failures may cause partial and temporary depression in particular sectors of an economy. However, these non-monetary factors cannot cause full and permanent depression involving general unemployment of the factors of production in a trade cycle. On the other hand, changes in the flow of money are the exclusive and sufficient cause of changes in trade cycle. In Hawtrey’s opinion, the basic cause of trade cycle is the expansion and contraction of money in a country. According to Hawtrey, changes in the volume of money are brought about by changes in the rate of interest.… Read the rest

Profit Planning and Forecasting in Business

A business is considered to be sound if it includes consistency in earning profit while considering the various risks as well. A firm is faced with a number of uncertainties. These uncertainties are in terms of nature of consumer needs, the diverse nature of competition, the uncontrollable nature of most elements of cost and the continuous technological developments. The uncertainty about the pattern and extent of consumer demand for a particular product increases the degree of risk faced by the firm. The nature of competition is related to either product, price or to both simultaneously. Product competition is more important till the product reaches the stage of maturity.… Read the rest

Theories of Profit in Economics

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.

Theories of Profit in Managerial Economics

There are various theories of profit in economics, given by several economists, which are as follows:

1. Walker’s Theory of Profit as Rent of Ability

This theory is pounded by F.A. Walker. According to Walker, “Profit is the rent of exceptional abilities that an entrepreneur may possess over others”. Rent is the difference between the yields of the least and the most efficient entrepreneurs.… Read the rest

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.… Read the rest

Business Competition

Meaning of Competition

To a particular business, competition usually refers to firms that market similar or substitutable products in the same geographic area. In general, the term business  competition refers to the rivalry among businesses for consumer dollars. For example, the manager of a fast food outlet in an airport views all other fast food outlets near the airport as competition but probably does not think fast food outlets in other geographic areas as competition. In general, all the fast food outlets near the airport compete for passengers’ dollars.

In developing and implementing a marketing program, an organization must consider the types of business competition in its markets and assess the actions of its competition.… Read the rest