Monopoly is the the exclusive possession or control of the supply or trade in a commodity or service. A monopoly has many disadvantages. A monopoly tends to have a poor level of service. A monopoly market is best known for consumer exploitation. There are indeed no competing products and as a result the consumer gets a raw deal in terms of quantity, quality and pricing. In a monopoly, lack of competition leads to low quality and out dated goods and services and consumers may be charged high prices for these low quality goods and services.
Tag: Economics
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Advantages of a Monopoly.
Monopoly is the the exclusive possession or control of the supply or trade in a commodity or service. Monopolies usually have disadvantages but in some circumstances they have advantages. There are more economies of scale in a monopoly. With increased output in the monopoly there may be a decrease in average costs of production. These can be passed on to consumers in the form of lower prices. There is also more international competitiveness in a monopoly. For instance, a domestic firm may have a monopoly power in the domestic country but face effective competition in global markets. With markets increasingly globalising, it may be necessary for a firm to have a domestic monopoly in order to be competitive internationally. A monopoly is a symbol of power. A firm may become a monopoly through being efficient and dynamic. A monopoly is thus a sign of success not inefficiency.
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Fiscal Policy
Fiscal policy is the use of government’s money in order to influence The fiscal policy effects; aggregate demand and the level of economic activity, Savings and Investment in the economy and the distribution of income. There are three main types of fiscal policy; neutral, expansionary, and contractionary. Neutral fiscal policy is undertaken when an economy is in equilibrium i.e; government spending is fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic activity. Expansionary fiscal policy is when government spending is exceeding tax revenue,and it’s usually undertaken during recessions. It is also known as reflationary fiscal policy. Contractionary fiscal policy occurs when government spending is lower than tax revenue, and is usually undertaken to pay down government debt.
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Balance Of Payment Stability.
Balance of payments stability is the balance between negative and positive balance of payments. The balance of payments is positive if the exports are more than imports, however it is negative if the imports are more than the exports. If the balance of payments is more negative within a period of time, new government policies for trade are needed.
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Balance of Payments
The balance of payments of a country is the record of all economic transactions between the residents of the country and the rest of the world in a particular period, most commonly a year. These transactions are made by everyone; individuals, firms and government bodies. Hence, the balance of payments includes all external visible and invisible transactions of a country . It also represents a summation of country’s current demand and supply of the claims on foreign currencies and of foreign claims on its currency. These transactions include payments for the country’s exports and imports of goods, services, financial capital, and financial transfers.It is prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items.
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Functions of the Central Bank
The main function of the central bank is to control the nation’s money supply i.e monetary policy, through active duties such as managing interest rates, setting the reserve requirement, and acting as a lender of last resort to the banking sector. The central bank is also given the sole monopoly to issue the currency. Central banks everywhere act as bankers, fiscal agents and advisers to their respective governments. The central bank keeps the deposits of the government and makes payments on behalf of the government. Yet it does not pay interest on governments deposits. It also buys and sells foreign currencies on behalf of the government.The most important function of the central bank is to control the credit creation power of commercial bank in order to control inflationary and deflationary pressures within this economy.
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Price Elasticity of Supply
Price elasticity of supply is the measure of the responsiveness of quantity supplied to a change in price. A product is perfectly elastic when the the quantity supplied is infinite with the 1% change in price. A product is relatively elastic if with 1% change in price there is a more than 1% change in supply. A product is relatively inelastic if with a 1% change in price the change in the supply is less than 1%. A product is unit elastic if after 1% change in the price the change in supply is equal to 1%.
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Price Elasticity Of Demand
Price elasticity is a measure of effect of a price change or a change in the quantity supplied on the demand of a product or service. Price elasticity of demand is a measure that gives the percentage change in quantity demanded in response to one percent change in price. A product is elastic if with 1% the change in the price, the change in demand is more than 1%. A product is perfectly elastic if the change in demand is more than 1% with 1% change in price. A product is inelastic if after 1% change in price the change in demand stays between 0 and 1 percent. A product in perfectly inelastic if after 1% change in price the change in demand is equal to 0% A product is unitary elastic if with 1% change in the price the change in demand is equal to 1%.
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Product Life Cycle
Alike anything a product also has a life cycle. A product life cycle has five stages, introduction, growth, maturity, saturation and decline. Introduction is the most difficult and expensive stage. It is when the product has to launch itself and has a small market; having lesser sales and lesser profit. However, growth stage is when the business gains more profit and expands itself. Saturation is when a product has made a mature position in the market and gain consistent profit. However, there is a decline stage, where a product starts to shrink. It could be through other competition or because the product might be outdated.
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Sole Trader
A sole trader is the simplest form of business structure and is relatively easy and inexpensive to set up. A sole trader is legally responsible for all aspects of the business. They make all the decisions about starting and running your business. The sole trader is also effected by any profit or loss the company makes. Being a sole trader is risky because of unlimited liability, which means that a sole trader’s personal assets can be taken away if they are late on payments and/or things go wrong. But it is relatively easy to change business structure if the trader’s business grows or if they wish to wind things up.
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Needs, Wants, Scarcity
As you probably know, we all have needs and wants. Needs are things we require to live, like water. I’m sure you can live without a Rolex for as long as you live but you can’t live without water for more then 3 days. Wants are things you can live without but they might make your life easier and make you feel good about yourself. All these needs and desires cost money, which we can only have so much of. Money is in limited supply and not everyone has an equal amount. The idea of having a limited resource is called scarcity.
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Value Added Concept
When something is manufactured, a sum of money is spent on it, usually for the raw materials. That is the production cost. The enhancements a company adds to it’s products before offering it to the final consumer adds value to it and because of these enhancements the company or firm can sell the product at a higher value. This value is called the added value. In other words it is the difference between the sale price and production cost.