Economics Principles

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

Abey Francis

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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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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Difference Between Economies of Scale and Economies of Scope

Economies of Scale

The term economies of scale refers to a situation where the cost of producing one unit of a good or service decreases as the volume of production increases.

Economies of scale arise when the cost per unit falls as output increases. Economies of scale are the main advantage of increasing the scale of production.

Alfred Marshall made a differentiating concepts of internal and external economies of scale. That is that when costs of input factors of production go down, it is a positive externality for all the firms in the market place, outside the control of any of the firms.… Read the rest

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Why Competition may Sometimes be Helpful?

Market structures refer to a total number of businesses in the market, their share and extent of competition in those businesses. Competition is a crucial aspect which cannot be overlooked in business. This is because human needs are many but resources for satisfying them are limited. As a result, firms have to compete to ensure they provide required services at certain cost. The major objective to operate a successful business is to earn a profit. In this process, resources are deployed to generate profits and thus businesses have to allocate resources strategically to ensure maximum benefits are achieved. In some business models, competition is steep while in others, they serve as a monopoly.… Read the rest

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