Understanding the Financial System and its Components
The Financial System: Structure and Key Components
The financial system is composed of a set of intermediaries that channel resources towards financing private consumption, business investment, and public spending.
1. Funds or Financial Assets
These products provide a means of maintaining wealth for those who possess them (assets) and a debt for those who owe (liabilities). They differ by:
- 1.1. Liquidity: Measures the ease and certainty of realizing the assets in the short term without incurring losses.
Market Structures: Externalities, Competition, and Monopoly
Market Externalities and Their Impact
Negative Externality: The production of aluminum results in pollution, posing health risks due to atmospheric pollutants.
Positive Externality: Construction projects, like train stations, can provide shelter. New technologies, such as database programs, can boost productivity when implemented by other firms.
Positive Consumption Externality: Education, when knowledge is shared, creates added value.
Negative Consumption Externality: Driving under the influence of
Read MoreUnderstanding Natural Monopolies, Regulation, and Market Dynamics
Natural Monopolies
- Natural Monopoly: A market situation where a single firm can supply the entire market demand at a lower cost than multiple firms. [1]
- Example: Utility industries like water, sewer, natural gas distribution, and electricity distribution are classic examples of natural monopolies due to their high fixed infrastructure costs. [2] For instance, in California, about 70% of electricity bills go towards recovering fixed costs like wires and substations. [3]
- Reasons for Natural Monopoly:
Business Models, Competitive Strategies, and Market Dynamics
Business Model & Competitive Strategies
Business Model: How a company creates, delivers, and captures value. Ex: Netflix charges monthly fees to deliver entertainment through a streaming platform.
Strategy Model: How a company competes in the market to achieve its goals and gain a competitive advantage. Ex: Invest heavily in original content to differentiate itself from competitors like Amazon Prime & Disney+.
Fragmented Industries
A fragmented industry is one where there are many small or medium-
Read MoreKey Accounting Principles and Practices
The realization principle aims at not anticipating outcomes, even if there is a high degree of assurance that the transaction will be finalized at a future date.
- Heritage expenditure decreased, however, it is required to generate revenues in the period.
- Losses are decreases in equity assets which are wholly or partially extinguished or contract obligations without getting anything in return.
- Earnings can materialize in asset increases or decreases in liabilities.
- The accounts are an ordered set of notes
National Income, Consumer Equilibrium, and Market Dynamics
Defining National Income and Measurement Challenges
National income refers to the total value of all goods and services produced in a country over a specific period, typically measured annually. It serves as an indicator of a country’s economic performance and overall wealth.
Difficulties in Measuring National Income in Developing Countries like Nepal
Measuring national income in developing countries like Nepal presents several challenges:
- Informal Economy: A significant portion of economic activity