Economics

Adam smith developed the labor theories of value to explain the relationship between the value attached to a commodity and the labor required to produce the item. According to Adam Smith, the value of a commodity is directly proportional to the amount of labor required to produce it.  He says that the value of any product is attached to the labor used to make it. Labor refers to the efforts that a person puts in an activity to achieve some specific results. Adam Smith gave the first definition...

A minimum wage is the least wage that is lawfully permitted in an industry, organization and government. The main aim of coming up with minimum wage was to assure those who earn wages a living standard that is above the minimum required standard. The minimum wage has been arrived at by unions of labor through combined bargaining by negotiation, action of the board and by legislation.The minimum wage was first introduced in New Zealand in the year 1894 through mandatory negotiation. At this moment,...

The growth or sustainability of a nations economy is highly dependant on the circular flow of income among the different stakeholders of the economy. It is due to the consumers habits of spending that triggers investments as a way of meeting their demand for goods and services. Such investments open new employment opportunities to the people thus increasing the net expenditure capacity of the consumers. Increase in the net expenditure ability of the householders has a linear implication on the growing...

Monetary transmission mechanism is a policy and a process where the change in the interest rates affects the levels of inflation. This mechanism generally describes how changes that are induced by policies in the nominal short term interests can have a major impact on several variables such as employment and the output aggregate.  There are particular channels of monetary transmission that work on the premises that monetary policy has effects on interest rates, rates of exchange, prices of...

The period 2006 to 2008 is an interesting one in the economic sense. This is because of the way the global economy went full cycle and stunned the world. In the year 2006, the global economy was doing well and generally people were hopeful about their future. Due to this optimism, borrowings from the financial markets to fund huge spending by the public dramatically increased, and as a result the financial market kind of overheated. Then towards the end of 2008, economic experts and the general...

Purchasing power parity is a theory of determining exchange rate and a means of comparing the average costs of goods and services between different countries. This theory operates on the assumption that the actions of both exporters and importers are motivated by cross border countries prices variances, inducing changes in spot exchange rate. In addition, the theory of purchasing power parity also suggests that transactions on a countrys current account, affects the value of the exchange rate on...

According to classical economics, wage tends to be flexible in the short-run. Suppose, there is a leftward shift in aggregate demand, aggregate supply shifts leftward. To maintain full employment of labor, firms cut the price of labor (wage). At the new intersection, say point B, L0  L1, or the previous supply of labor is equal to the its present supply. However, w1  w0, or the new wage level is less than its previous level. Cutting wages, in cases of say recession, generally restores...

In a world like today where everyone wants to have the most economical means of attaining goals and realizing targets, it is but no wonder why companies, employers, and business owners look for alternative means to cut down on costs to augment their income not to mention the most prevalent option of most companies nowadays, the so-called outsourcing.    Outsourcing typically means that a company would opt to have a particular job or process be done by a third party company. A third...

The market of a product is the availability of people who can buy the product for consumption or utility. This can be influenced by several factors depending on the demand and supply of the product. Other factors that influence the market of a product may include the tastes of the people fro which it draws its demand, the number of the people available to buy it, the income of the people who are likely to buy it and its price. In essence, price is the biggest factor that influences the demand of...

In most cases price discrimination is practiced in market short of perfect competition such as monopoly markets. Where monopoly exists, firms are likely to charge higher prices on product than in competitive market and quantity sold is less generating supernormal profits. Further this profit can be increased if the market is segmented with varying prices charged in different segment.    However price discrimination can be practiced in oligopoly markets. In order to maximize profits,...