International Economics

Supply-Side Economics

The early 1980s saw the emergence of a new school of thought that emphasized the impact of aggregate supply on the economic growth of nations. This new school of thought was called supply-side economics.

Supply-side economists argued that creating an economic environment that provided incentives for people to work and save money, and also an environment that is conducive for firms to invest and create employment would cause an increase in aggregate supply. The supply-side economists assumed that the aggregate demand of the nation was always adequate and that it would absorb the aggregate supply, thus indicating their acceptance of Say’s law.… Read the rest

Abey Francis

Dumping Concept in Managerial Economics

The term Dumping means selling a firms product in foreign market at a price lower than in the home market.  Dumping is a form of price discrimination. Let us elaborate ‘dumping’ by considering the following illustrations :

Suppose the producer is selling in two markets; viz, the home market and the world market.   In the home market he is saddled as a monopolist but in the world market there is perfect competition.   Let us therefore analyse the price-output policy of the producer under this peculiar situation.  Since there is perfect competition in the world market, the producer has to take the price which prevails in the world market.  … Read the rest

Abey Francis

Different Approaches to Profit in Managerial Economics

Profit is the reward which goes to organization as a factor of production for its participation in the process of production.

Profits differ from other factor rewards in the following ways:

  1. Profit is a residual income left after the payment of contractual rewards to other factors of production. The entrepreneur while hiring other factors of production enters into contract with them. He pays wages to workers, rent for land and interest for borrowed capital and the residue or whatever is left is his profit. Thus profits become non-contractual in character.
  2. The various factors of production are rewarded even before the sale of the product and irrespective of its sales whereas profits accrue only after the product is sold.
… Read the rest
Abey Francis

Stagflation and Phillips Curve

Meaning of Stagflation

The present day inflation is the best explanation for stagflation in the whole world. It is inflation accompanied by stagnation on the development front in an economy. Instead of leading to full employment, inflation has resulted in un-employment in most of the countries of the world. It is a global phenomenon today. Both developed and developing countries are not free from its clutches. Stagflation is a portmanteau term in macro economics used to describe a period with a high rate of inflation combined with unemployment and economic recession. Inflationary gap occurs when aggregate demand exceeds the available supply and deflationary gap occurs when aggregate demand is less than the aggregate supply.… Read the rest

Abey Francis

Market Failure and Government Intervention

Market failure refers to a market that fails to provide efficient outcomes for the society. In other words, market works efficiently only when there exist perfect competition or when exclusion principle could be applied in the free market. Exclusion principle requires that, those who do not pay for as goods should be excluded from its consumption and those who derive any benefit from goods should bear its cost. In free market economy the main responsibility of the government is to prevent the market from failure.

Market failure can be summarized in two ways:

  1. Market failures due to incentive or incentive failure
  2. Market failures due to structure or structure failure
1.… Read the rest
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Abey Francis

What is Market Failure?

Market failure can be defined as the situation in which the allocation of goods and services by free market is not efficient. It occurs as market fails to fulfill its obligation the most common failures involve cases of inadequate competition, inadequate information, resources immobility, public goods and imperfect competition. These failures occur on both the demand and supply sides of the market.

Government failure occurs when the government intervenes in the market to improve the market failure actually makes the situation worse. When market failure exist there is a reason for possible government intervention to improve the outcome, but it`s not clear that government action will improve the result since the politics of implementing the solution often lead to further problems.… Read the rest

Abey Francis