Microeconomics Principles: Market Dynamics and Resource Allocation
Circular Flow Model: U.S. and Global Economy
The circular flow model illustrates the economy, showing the circular flow of expenditures and incomes resulting from decision-makers’ choices and their interactions.
Households are individuals or people living together as decision-making units. Firms are institutions that organize the production of goods and services.
A market is where goods and services are exchanged. We have:
- Factor markets: Where factors of production (e.g., labor, capital, land) are
Key Economic Concepts: Profit Theories, Investment Drivers, and Keynesian Employment
Understanding Theories of Profit
Profit is the reward earned by an entrepreneur for organizing and managing the factors of production. Economists have proposed various theories to explain the origin and nature of profit. Each theory highlights a different aspect of entrepreneurship. The six major theories of profit are explained below:
1. Rent Theory of Profit – F.A. Walker
- This theory compares profit to rent.
- Just like landowners receive rent for using more fertile land, entrepreneurs earn profit
Key Economic Concepts Explained
Monopoly Market
A monopoly market is a market structure where a single firm or entity has complete control over the production, distribution, and sale of a particular product or service.
Key Characteristics
- Single Seller: There is only one seller or producer in the market.
- No Close Substitutes: The product or service has no close substitutes, making it difficult for consumers to switch to alternative products.
- Barriers to Entry: There are significant barriers to entry, making it difficult for new firms
Government Fiscal Policy and Deficit Analysis
Fiscal Policy Fundamentals
Definition of Fiscal Policy
Fiscal policy refers to the government’s policy of managing its income (revenue) and spending (expenditure) to influence the country’s economy. It is mainly concerned with taxation, public spending, and borrowing.
Objectives of Fiscal Policy
- Economic Stability: To control inflation or deflation by adjusting government spending and taxes.
- Full Employment: To create job opportunities by investing in public works and development projects.
- Economic
Understanding Company Costs and Production
What Are the Costs?
Total Revenue, Total Cost, and Profit
Start with the goal of the company: understand their decisions, knowing what they are trying to do.
A key question is: What is the benefit of a company?
Profit = Total Revenue (TR) – Total Cost (TC)
Key Definitions:
- Total Revenue: The amount received from the sale of production.
- Total Cost: The market value of the factors used in production.
Accounting and Economic Costs
- An economist refers to the cost of production of a company, which includes all
Accounting for Loans to Other Entities: Valuation & Recording
The information presented pertains to accounting purposes and will be reflected in the accounts designated for subgroups 53 and 54. When a company receives a loan and pays interest, it is required to withhold taxes from the lending company, which are then payable by the latter.
Investments in Financial Assets
Loans to Other Companies
When a company has excess liquidity, it can, as discussed previously, acquire shares in other companies as an investment, or it may choose to purchase debt securities
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