Managerial Economics

15 Characteristics of Capitalism Economy (With Examples)

Last Modified: 5 February, 2020 Leave a Comment

Capitalism economy is a system of the economic organization featured by the private ownership and use for the private profit of man-made and nature-made the capital.

There is private ownership of the means of production and distribution which are used for earning maximum profits according to the competition available.

The existence of the capitalism economy had been possible only by the amendments made from time to time.

So many defects have to be overlooked. Pure capitalism which was born in the 19th century has become an extent of the world economy.

In America, England, and many Western countries, capitalism economy are present now also.

Characteristics of Capitalism Economy

The main characteristics of capitalism economy system are:

1. Market imperfection

Perfect competition is not found in the modern capitalism system, So both the buyers and sellers find market Imperfection.

In the buyers’ attitude, we find Monopsony, divopsony, and Oligopsony are present and on the seller side, we find Monopoly, duopoly, and oligopoly system.

Product differentiation tradition pattern of advertisement is in invisible in perfect competition but visible in perfect imperfect competition.

2. Importance of Professional Management

The modern economy needs factors like large-scale production, knowledge of Technical know-how and efficient Management.

Which is present only in the modern capitalism economic system.

The drawback of this capitalism economic system was widening the gap between the owners of the concern and management of the concern and giving rise to monopoly.

3. Existence of Labour Trade Unions

Economic and social exploitation of labour in the enterprises lead to the growth of the trade union.

Protecting the interests of labours and safeguarding them from the hands of capitalism were the main activities of the trade unions.

4. Importance of Public Utility Concerns

Public utility concerns are given the importance because serving the people is the social responsibility of the concerns.

Therefore, providing national security, basic infrastructural facilities and public services like electricity, L.P.G., telecommunication its necessary.

5. Expansion in the state control

Business is connected to society in various forms and Thus they should fulfil the obligation towards social responsibility.

A business owes the obligation of making plans for increasing production, distribution, consumption, saving, investment, employment, balanced regional development and overcoming the hurdles of the economy is the aim of modern capitalism economy/system.

6. Right of Private Property

Private ownership is the main component of capitalism economy.

Thus, every individual can have.

Right to hold and Freedom for the use of private property

The right of inheritance like the passing of the property inheritance to the coming generation.

7. Economic Freedom

The second important characteristic is the economic freedom which is enjoyed by the individual in the form of:

Free entrepreneurship
Freedom for entering into a contract and mutual agreement.
Right to use one’s own private property according to one’s will.

According to Robertson economic freedom includes:

Freedom of enterprise.
Freedom of contract.
The Freedom of selection.

Thus, in the capitalism economic system, there is no interference of the government in private ownership of the property and utilization of property.

8. Consumer’s Sovereignty

Consumers have the freedom for consumption according to their need, taste, and desire.

The consumer is the king of the market and thus production is done according to his will.

Manufacturing is done keeping in mind the consumption pattern of the consumers.

9. Competition

There is competition present in the market among the buyers and sellers of the product.

Therefore, only efficient buyers and sellers are able to compare. Markets based on competition types.

10. Private Profit Motive

Under capitalism, profit motive acts as a basic yardstick of performance.

Profit-making is the heart of the economic activities undertaken in the capitalist society.

Private profit motive super-cedes the social serving motive of a firm.

11. Price Mechanism

Of all characteristics of capitalism economy, the economic activities of planning, coordination coordinating and controlling moves around the price mechanism.

Price mechanism works on the basis of what to produce, how to produce and for whom to produce.

All the decisions regarding savings, investment and consumption are also parts of the price mechanism.

12. Combination of Competition & Coordination

Capitalism economy is a combination of competition and coordination feeling is present on one hand leading to competition among the producers, sellers, consumers, And Labour and on the other side creating a feeling of co-ordinations among them.

13. Inequality of wealth and distribution

Inequality of wealth and distribution creates the division among the individuals in the form of rich and poor, haves and have-nots.

14. Centralization

The centralization of wealth and economic power creates the feeling of suffering among the people.

15. Entrepreneurs Role

Entrepreneurs are the soul of capitalism economy and so they are very important.

In the capitalism economic system, the Entrepreneur who gets the risk is able to control the business so risk-taking and controlling go simultaneously.

Thus, now you know the major characteristics of capitalism economy.

13 Characteristics of Socialism Economy (With Examples)

Last Modified: 5 February, 2020 4 Comments

Socialism is an economic system where the means of production are either owned and managed by the state maximum social benefits is the central idea of socialism.

Socialism is an economic organization of society in which the material, means of production are owned by the whole community according to a general economic plan, all members being entitled to benefits from the results of such socialism planned production on the basis of equal rights.

Characteristics of Socialism Economy

The main features or characteristics of socialism economy system are as under:

1. Proper Utilisation of Factors of Production

In the socialism economy, the best possible utilization of physical and human resources is done keeping in mind the benefits to the public.

They help in increasing production, consumption and income pattern whereas in capitalism importance is given to luxurious.

2. Quick Economic Stability

Rapid economic development takes place in socialism where economic stability and best utilization of resources as possible.

3. Maximum Social Benefit

In the socialism economy means of production are owned by the government which is used to derive maximum benefits to the society.

4. Government Ownership

The main feature of socialism economy system is government ownership. Here the factor of production and personal where is taken up for Nationalisation.

It becomes easy for achieving the desired goal where resources are used in the planned manner for the social benefit.

In socialist economy, the state owns almost all of the means of production compelling the common man to act as Government employees.

5. Facilitate Central Economic Planning

In the socialist economy, central planning is given due importance.

The central planning commission is formed so that all activities are carried out in the planned manner for attending the specific objectives.

6. Government Control on Production and Distribution

The government acts as a central figure for deciding what is to be produced, when it is produced, how it is going to be produced, who is producing it and on the other hand, decide how the distribution will be done and what quantity.

Private ownership of an important role in the capitalism economy whereas govt.

Ownership is carried out in a socialism economy.

7. Maximization of social benefits

In the capitalism economy, the maximization of private profit is there whereas in the socialist economy social benefit is given due importance.

Here the main factors of production are owned by the government and are used for the maximization of the benefit of the public at large.

8. Absence of Exploitation

In the socialism economy, there is government ownership of the factors of production leading to the Welfare of the public.

The exploitation of labors and Consumers is completely abolished in the social system.

9. Economic Equality

Private ownership, private profit, and exploitation also give rise to economic inequality in capitalism economy.

Whereas the presence of government ownership of property, the absence of exploitation and avoidance of private profits give rise to economic equality in socialism economy.

10. Absence of Unearned Income

In the socialism economy, private ownership of the wealth is absent thus passing the wealth on hereditary is stopped and so if the person will works then only income will rise.

The chief principle of the socialism economy can be “No work, No bread”.

11. Absent of freedom of pricing the product

In the socialist economy, freedom of pricing the product is absent since the price of the product is decided not according to the force of demand and supply but are given by the Board of Central planning.

Only the government decides the prices because the ownership of means of production lies in their hand.

12. No Consumer Sovereignty

Wants of the consumer are generally not taken into consideration for the production of various goods.

The demand and the consumption pattern of a product are also decided by the government.

Desires of the consumer are overlooked and so they are completed to use the good of the government.

13. Other characteristics

Heavy and huge businesses are established by the government.
Personal freedom is lost.

Thus, now you know the characteristics of socialism economy.

17 Scope and Importance of Macroeconomics (With Examples)

Last Modified: 4 February, 2020 Leave a Comment

Macroeconomics scope is wide and it studies the economic variable affecting the economy as a whole and other economies as well.

Macroeconomic is called income and Employment analysis.

It studies the effective demand and income, employment, investment economic variables.

Scope of Macroeconomics

The scope of macroeconomics is very wide following points can be studied under it:

1. Theory of Income and Employment

In it, the formulation of income and Employment level is done and the study of consumption, function, investment, function, multiple and accelerator is also done.

2. Theory of General Price Level

In it, the formulation of the general price level is studied and problems related to inflation, deflation are a prime subject matter of Macroeconomics.

3. Theory of Development and Planning

For a fast and balanced development, developing countries apply many economic theories.

So, the study of process and theories of economic development and planning is also an important subject matter of Macroeconomics.

4. Theory of trade cycle

In the macroeconomics study of the trade, the cycle is done.

The factor of Boom and Depression in the trade cycle, there effects and removal of these effects are studied in Macroeconomics.

5. Theory of International Trade and Foreign Exchange

It is also a subject matter of Macroeconomics.

Under its theory of International Trade, terms of trade, determination of foreign exchange rates, etc. Are studied.

6. Theory of Public Finance

In it, the study of theories, policies, and effects related to government income, expenditure loans, etc. are done.

The study of fiscal policy is the prime subject matter of public finance.

7. Principles of Money and Banking

In macroeconomics, theories related to Money and banking, country’s monetary and credit system, functions of the central bank and other banks and international finance are studied.

8. Macro-Theory of Distribution

In macroeconomics study of the distribution of wages and profits in national income is done.

So, it is clear that the scope of Macroeconomics it’s very wide.

Importance of Macroeconomics

Following are the importance of macroeconomics:

1. Useful in Formulation of Economic Policies

Macroeconomics is very useful in the formulation of economic policies.

Macroeconomics is very important in the view of economic policies because economic policies of the government are related to the group of individuals and not with individuals.

2. Understanding the Collective and Complex Operation of Economy

In Microeconomics knowledge of only individual units can be done but for the collective and complex operation of while the economy, Macroeconomics is helpful.

3. Helpful in Development of Microeconomics

It is helpful in the development of microeconomics because the formulation of laws and theories of microeconomics is done with the help of macroeconomics.

4. Solving various Economic Problems

Economists take the help of macroeconomics in solving the problem related to the whole economy, like-National income, National Savings, and investment, consumption, production, etc.

5. Useful in Economic Planning

At present, for the solution of economic problems and for fast and balanced economic development.

Every nation takes the help of economic planning and the determination of targets in plans is done on the basis of Macro Analysis.

6. Analysis of trade cycle

On the basis of macroeconomics by doing the analysis of factors boom and depression, important steps are taken for the removal of the cycles.

7. Analysis of Monetary Problems

Knowledge of the determination of monetary policy of a country, the study of its effect and cause of monetary problems and solutions for the removal of these problems is done only by Macro analysis.

8. Study Whole Economy

Due to micro paradoxes, it is essential to study the whole economy because those decisions which are applicable to individual units it is not necessary that the same decision will be applicable to the whole economy.

9. Analysis of Unemployment

In a country, the reason for unemployment is due to a lack of effective demand.

So for the removal of unemployment increase in effective demand is essential.

These factors of unemployment, its effect, and solutions for removal of these effects is possible through Macro Analysis.

Thus, now you know and understand the scope and importance of macroeconomics.

15 Importance and Limitations of Microeconomics (Explained)

Last Modified: 4 February, 2020 Leave a Comment

The importance of microeconomics in the modern economic system is limited because it provides a solution to individual problems only. Its scope of the study is limited and it is a part of the macroeconomic analysis

importance and limitations of microeconomics

From the above discussion, it is clear that microeconomics is an important branch of economic analysis.

Importance of Microeconomics

Following are the major importance of microeconomics:

1. Helpful to Study Economic Problem

Through the study of individual units separately, microeconomics make easy to study the whole economy.

Because construction of the whole economy is done by the combination of individual units.

2. Complementary of Macroeconomics

Microeconomics studies individual action and behavior.

Analysis of the whole economy becomes easy on the basis of individual savings, Individual investment and individual expenses.

So, Microeconomics helps in the macro analysis.

3. Management of Business Enterprises

These days, with the help of microeconomics business manager, take important managerial decisions.

In decision making knowledge of microeconomics is very helpful.

4. Analysis of Problems and their Solution

In microeconomics study of the problem of the individual economic unit is done and by examination and analysis these problems the solution is found.

5. Helpful in Analysing the Problems of Taxation

By studying the effects of different types of taxes with the help of microeconomics, it can be known that which tax is proper to impose and which tax is not.

6. Important for Managers

The knowledge of microeconomics helps managers in maximizing the profit by analyzing demand and supply of commodity cost and revenue etc.

7. Helpful in Factor Price Determination of Services and Commodities

With the help of microeconomics, the price determination of any commodity is done by demand and supply of that commodity under different conditions of the market.

8. Helpful in Factor Price Determination

The price of rent, interest, wages, salary, etc. of different factors of production land, capital, labor, entrepreneur, and Organisation is determined with the help of microeconomics.

9. Helpful in Explaining the Flow of Goods and Services

Microeconomics explains the flow of factors of production from household two firms and then the flow of goods and services from firms to the household.

10. Useful In Formulation of Economic Policies

Microeconomics is helpful in the formulation, analysis, and valuation of economic policies.

Limitations of Microeconomics

Microeconomics is very helpful in the economic analysis but it has some limitations:

1. Lack of Knowledge of the Whole Economy

With the help of microeconomics knowledge of the whole economy cannot be done because in it only individual units studied.

2. Not Appropriate for the whole Economy

Conclusions and results taken with the help of Microeconomics are not appropriate for the whole economy like- saving is appropriate for the individual, but if all peoples of the country together save them it has a bad effect on the Economy.

3. Based on Unrealistic Assumptions

Microeconomics is based on unrealistic assumptions like fill employment, perfect competition, self-interest.

4. Some Economic Problems cannot be Studied through Microeconomics

Macroeconomics is not appropriate for analyzing the effects of government revenue.

International trade, monetary and fiscal policy economics planning.

5. Less Importance

In present, the importance of analysis and study were done on a small level is decreasing.

Because in place of the individual, the importance of society and groups in increasing.

Thus, now you know the importance and limitations of microeconomics.

11 Role and Importance of Management in Society (Explained)

Last Modified: 13 February, 2020 Leave a Comment

Management is an indispensable element for the establishment of proper functioning and success of all organization’s social, political, religious, charitable or business units. If effectively and efficiently organizes and utilizes the human and non-human resources and directs them towards the accomplishment of organizational goals.

The importance of management in modern business is very Big but first, we learn what is the role of management of our society.

Role and Importance of Management in Society

In the Industrial society the role of Management may be viewed from the following:

1. Co-ordination of Different Factors

In large organizations, hundreds of thousands of people work together under the same roof in an organized manner to achieve the organization’s goal. Organizations depend on group efforts.

No individual can do much for the organization with his own efforts alone.

People at work in an organization assemble or produce certain goods or services according to the direction of the management.

The management coordinates the efforts of all factors of production. It needs to guide and direct people.

2. Achievement of Objectives

Each organization has its some objectives, The achievement of which calls for organized efforts in a planned manner.

Management becomes essential for directing and unifying the group efforts towards a common objective.

It integrates various activities to get the objectives.

3. Make of Proper Organisation Climate

The good working climate is a must for people to perform their tasks and responsibilities enthusiastically and economically.

Managers create a proper organizational climate by establishing an effective reward system, grievance handling system, problem-solving system, etc.

4. Increasing Productivity

The main objective of an organization is to maximize its profits by reducing the cost factor in production.

The human factor in an industry is the most effective factor of production.

Unless, it is satisfied and its attitude is favorable to work and Organisation, productivity cannot be increased.

Management is the activating agent for getting the work done through its personal.

The management must see that people are motivated to work so that productivity increases.

5. Facing Competition

Today production is done on a large scale basis to cope with increasing demand for goods and services at the national and international levels. Accordingly, the size of the market has also enlarged.

This has increased competition in the market.

The increasing competition requires efficient and effective handling of men and materials.

Management must mastermind its affairs to produce quality goods at a low cost. This calls for better management.

6. Modern Scientific and Technical Inventions

The new development in methods and machines has made the production process more Complex resulting in increasing importance of Machines and methods which has reduced the importance of men in the production process.

As complications have developed in managing the affairs, efficient management is needed to meet the situation effectively.

7. Creating of Good Organisational Structure

People in an enterprise must be properly organized into well-constituted purposeful groups in order to create cooperation and coordination in their thinking and activities.

8. Exercising a Positive Influence

Management should provide dynamic leadership that combines productive resources into a fruitful organization.

It adapts its self to exciting opportunities, restrictions, and presses. It exercises a positive influence to make future events favorable to the Enterprise.

To get the expected results the management has to see things happen as they should.

Through innovations, management forges ahead in the operating situation and adopting farsighted planning.

Visualizing the future, it initiates changes and achieves the purpose of the enterprise under highly dynamic conditions.

9. Adding to Real Value

Management acts as a creative and invigorating force in the organization.

It creates a result that is bigger than the sum total of efforts put in by the group.

It adds a real plus value to the operation of any enterprise by enlisting a little extra value out of each person. It provides new ideas, imaginations, and visions to the group working.

It integrates its efforts in such a manner as to account for better results, by focusing on strong points, neutralizing weak points, overcoming difficulties and establishing Team Spirit.

Social welfare depends upon the quality of Management prevailing in an organization

10. Necessary to all Organization

Not only the business organizations but the non-business organization like educational, religious, charitable, and other social organizations also need management.

The government at all levels nice management as much as other organizations need it.

Management is found everywhere as a distinct, separate and dominant activity.

It is the prime institution in an organization and its role cannot be undermined.

11. Proper Running of Business

Management successfully leads and motivates the workers to put their maximum efforts, skills, ability, and experience in performing their duties and responsibilities.

Thus, now you know the role and importance of management in society.

National Income Questions and Answers

Following are the top national income questions and answers or FAQs:

1. What is National Income?

National income is the flow of goods and services that become available to a nation during the year.

2. Write the formula of net National Product?

NNP (Net National Product) = GNP – Depreciation or NNP = GNP – Depreciation.

3. Name the concepts of national income?

There are various concepts or components of national income like Gross National Product, Net National Product, National income, Personal income, Disposable personal income, etc.

4. What do you mean by GNP?

The market price of final goods and services produced in a year in the country’s economy is termed as GNP. In this income derived from abroad is not included.

5. Name the methods of estimating National Income?

There are four methods:

Census of production.
Census of income.
Census of Expenditure.
Social Accounting Method.

6. Write the full form of GNP, NNP, and PI?

GNP = Gross National Product.

NNP = Net National Product

PI = Personal Income.

7. Define per capital income?

When we divide total national income by total population, we get per capita income.

8. What is Social Accounting?

Social accounting refers to that part of descriptive economics refers to the production and distribution of national income.

The process of adding up individual accounts gives a set of social accounting.

9. Give the definition of national income As given by Marshall, Pigou, and Fisher?

According to Alfred Marshall, “The labor and capital of a country acting upon its national resources produce annually a certain net aggregate of commodities, material and immaterial, including services of all kinds.

This is the true value of the net annual income of the country or the national dividends.

The national dividend or income contains solely of services as received by ultimate consumers. Only the services rendered during the year by durables are income”.

10. Difference between Gross National Product (GNP) and Net National Product (NNP)?

The gross national product is the monetary value of all final goods and services produced annually by a nation.

GNP = GDP + Net income from abroad

Whereas when we deduct capital consumption allowance or depreciation or wear and Tear of the machinery like obsolescence from the gross national product we get Net National Product.

NNP = GNP – Depreciation.

11. Difference between Real Income and Nominal Income?

When the national income of a country is expressed in terms of current prices during a particular year, It is known as the nominal income or national income at current prices.

But when it is expressed in terms of constant prices (or the prevailing price of the base year) it is called real income?

12. Difference between Personal Income and Disposable Personal Income?

Personal income is the amount that is actually received by the individuals during the year.

Transfer payment included in personal income whereas retained profits and corporate income tax and social security contributions are deducted from personal.

Personal income helps in estimating the potential purchasing power of households in the country.

PI = NI – Corporate income tax – Retained profits – Social security contributions + Transfer payments.

On the other hand, disposable personal income represents the real income that is consumed by individuals. It is termed as take-home income after paying all direct taxes.

DPI = Personal income – Personal direct taxes.

13. Mention any four difficulties in the measurement of National Income?

The following are difficulties in estimating National Income.

Lack of well organized monetized sector.
Inadequate and unreliable data.
Literacy and ignorance.
Lack of occupational specialization.
Difficulties in economic activities and choice of method.
The difficulty of errors in calculation.
Difficulties in the calculation of the value of services.
The problem of double counting.
Lack of statistical organization.
Difficulties in regional diversities.

14. Explain the Relation between economic Welfare and National Income?

National income is an index of the economic welfare of an economy.

Higher per capita income reflects the more economic welfare and vice versa.

15. How does the value-added method compute national?

In computing national income by this method, the value of the following elements of all the firm producing country good in a are estimated at added up:

Value of output.
Value of intermediate consumption.
Consumption of fixed capital.

16. Explain the main components of National Income?

Main components of national income are as under:

Gross National Product at market price.
Net National Product at market price.
Gross Domestic Product at market price.
Net Domestic Product at market price.
National Product at factor cost.
Net National Product at factor cost.
Gross Domestic Product at factor cost.
Net Domestic Product at factor cost.
Income from domestic product accruing to the private sector.
Personal income.
Personal disposable income.

17. Write any four importance of Social Accounting?

This method helps in the process of policy formulation and its execution in the economy.
It helps in the formulation of budgetary policy and the taxable capacity of the people can also be calculated.
It can be used for long-run decision making and demand forecasting.
Different sectors of the economy are studied with the help of this method and it measures the production level.

Thus, now you know the top national income questions and answers.