Economics Principles

Welfare Economics

“The greatest meliorator of the world is selfish, huckstering trade.” (R.W. Emerson, Work and Days)

Welfare Economics is a normative branch of economics that is concerned with the way economic activity ought to be  arranged so as to maximize economic welfare. The hallmark of welfare  economics is that policies are assessed exclusively in terms of their effects on the well-being of  individuals. Accordingly, whatever is relevant to individuals well-being is relevant under  welfare economics, and whatever is unrelated to individuals well-being is excluded from  consideration under welfare economics. Economists often use the term utility to refer to the well-being of an individual, and,  when there is uncertainty about outcomes, economists use an ex ante measurement of well-being,  so-called expected  utility.… Read the rest

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Poverty Trap

Poverty trap is a situation where an unemployed person receiving social security benefits not encouraged to  seek work because his or her after €tax earnings potential in work is less than the benefits currently  obtained by not working. The poverty trap occurs due to benefits such as income support, housing benefit, single parent allowance and family tax credit. Given that social security benefits represent the ‘bottom line’ (that is, the  provision of some socially and politically ‘acceptable’ minimum standard of living), the problem is how  to reconcile this with the ‘work ethic’.

For example, consider the case of a low-skilled person in the UK.… Read the rest

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The Edgeworth Box

In 1881,  Francis Y. Edgeworth  came up with  a way of representing, using  the same axis,  indifference curves  and  the corresponding  contract curve  in his book “Mathematical Psychics: an Essay on the Application of Mathematics to the Moral Sciences”.  It was  Vilfredo Pareto, in his book “Manual of Political Economy”, 1906, who developed Edgeworth’s ideas into a more understandable and simpler diagram, which today we call the Edgeworth box.

Edgeworth box a conceptual device for analyzing possible trading relationships  between two  individuals or countries, using indifference curves. It is constructed by taking the indifference map of one individual (B) for two goods (X and Y) and inverting it to face the indifference map of second individual (A) for the same two goods.… Read the rest

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Government Policy Instruments for Managing Foreign Direct Investment (FDI)

By their choice of policies, home countries can both encourage and restrict FDI by local firms. We look at policies designed to encourage outward FDI first. These include foreign risk insurance, tax incentives, and political pressure. Then we will look at policies designed to restrict outward FDI.

Home Country Policies to Encourage Outward FDI

Many investor nations now have government backed insurance programs to cover major types of foreign investment risks. The types of risks insurable through these programs include risks of expropriation (nationalization), war losses and the inability to transfer profit back home. Such programs are particularly useful in encouraging firms to undertake investments in politically unstable countries.… Read the rest

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Analysis of Joseph Schumpeter’s ‘Theories of Economic Development’

At the turn of the century, a period of strengthening the role of monopolies, increasing property differentiation of the population and the deepening of cyclical crises appeared the concept of an Austrian economist and sociologist Joseph Schumpeter.

Joseph Schumpeter was an economist and sociologist, he came into the history of economic science as a profound scholar of theoretical problems of entrepreneurship and evolution of socio-economic systems, as the historian of economic theory. His broad vision of the evolution of socio-economic processes still has influence on modern economic thought. He presented his understanding of the subject of economics and tried to combine economic theory, economic sociology and the history of economic analysis.… Read the rest

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Cashless Economy – The Road Towards a Cashless World

A cashless economy is a system where payments are made by electronic means rather than using cash or check to pay for goods or services. In an economy that is “cashless”, a person would pay with plastic methods like credit cards, debit cards, or smart cards. This type of transaction electronically moves money from one account to another rather than using the traditional forms of exchanging printed currency or checks.

Woodfords Model of Cashless Economy

There has been much debate over Woodford’s model of a cashless economy by many experts in the field of economics. Most experts believe that although some of the ideas brought forth make sense, the model is still incomplete because, in real-world economics, central banks can affect nominal interest rates.… Read the rest

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