Mostly issued by financial institutions, a letter of credit (LC) is a standard document which is primarily used in the trade finances to provide irrevocable payment undertakings
Financial economics is a field of economics that deals with the deployment and allocation of resources, in an uncertain environment, across time as well as spatially and blends the study of finance with the methodology of economicsSearch
Why that 7th piece of pizza is not as good as the first – the Law of Diminishing Marginal Utility
Before we plunge into the some of the minor complexities of microeconomics, lets have a look at few of the key terms we will be talking about.
- utility – the measure of relative satisfaction gained from a good.
- total utility – the total amount of satisfaction gained from consuming a specific quantity. It is equal to all the marginal utilities added together.
- marginal utility – of a service or good is the utility gained or lost from the increase or decrease in consumption of that service.
- law of diminishing marginal utility – states that there is decline in marginal utility that a person derives from consuming each additional unit of that good.
Why popular toys during holiday season are in short supply – Demand and Supply
If you are a parent, or have seen Arnold Schwarzenegger’s ‘Jingle All the Way’, you will find that during the holiday season, most of the popular toys are in short supply. This can make it difficult for you to please your little one on Christmas. While most of us wont go to the lengths Schwarzenegger went in that movie, we are, at most of the times, willing to pay more for that toy to see the smile on our kid’s face.
But come January and the stores drop the prices of that same toy to sell off the remaining stocks as early as possible. So why do we – the consumers and the stores – the producers, behave in this way? The answer lies in perhaps one of the most fundamental concepts of economics called ‘supply and demand’ which is the backbone of market economy.
How companies afford their ‘SALE’ period – Price Elasticity of Demand
The Price Elasticity of Demand (PED) is defined as the measure of the responsiveness or elasticity of demand given a change in the price of that product. The coefficient of elasticity of demand is calculated as, ‘the percentage change in the quantity demanded (holding all the other determinants of demand constant) divided by the percentage change in its cost/price. The values of PED are almost always negative, however, economists ignore the minus sign.
The values that determine the elasticity of demand are as follows.
Zero – demand is said to be ‘perfectly inelastic’ which means that there is no change in demand even if the price changes. In such a case the demand curve is a vertical line
Between zero and one – demand is said to be ‘inelastic’. In this scenario the percentage change in demand is smaller than the percentage change in price.
Types of Markets
In the field of economics, in the general terms, ‘market’ is essentially a conglomeration of sellers and buyers of certain goods and services and also the transactions between them. On the basic front, universally a market is any place where buyers and sellers meet to trade. However, these days the term ‘market’ is mostly used to designate the ‘exchanges’ that trade in financial securities and other financial instruments. These markets are of various types, major types of which are explained below.
Capital Markets
These are the markets for securities where governments and companies (business enterprises) can raise long term funds. The money in this market is provided for periods that are generally longer than a year. The capital market further includes the stock and the bond markets.
Perfect Competition
‘Perfect Competition’ (also known as ‘pure competition’) in economics is an ideal form of an industry where price competition is not only dominant but also the only form of competition available or possible. The concept and terminology is quite popular and yet, is not completely universal.
For any industry to have perfect competition, it should have the four characteristics that define the structure of perfect competition.
1. Many buyers and sellers
2. A homogeneous product
3. Free entry
4. Sufficient knowledge
Many buyers and sellers
In perfect competition, a number of businesses (goods or service providers) compete with each other for gaining the attention of customers,
Microeconomics. Macroeconomics. Leagues apart yet connected.
When as a lay man, I first heard the terms ‘macroeconomics’ and ‘microeconomics’, they sounded a lot alike to me. I even ended up thinking that they might be the same or just marginally different. However, macroeconomics and microeconomics, that are branches of economics, are a lot different in the fields they cover. They are independent in their studies and at the same time complement each other since there are many overlapping issues between the two. Together, they are the vantage points from which the economy can be observed.
Microeconomics
Microeconomics approaches and studies economy at a low or micro level. It considers the behavior and decisions of the people and businesses in regards to the allocation of prices and resources for goods and services.
The complex world of simplified economics – Microeconomics
In general terms, microeconomics can be defined as the branch of economics which deals with the decisions at a low or micro level. It studies the behaviors of individual producer and consumer, particularly as decisions are made with respect to the allocation of limited resources.
Lets have a look at my ‘balloon incident’ as an example to understand microeconomics in simpler terms. For simplicity’s sake, lets consider me as the consumer, the store manager as the producer and the balloons as the product.
A few days back, I was at the supermarket shopping for some decorations for a surprise party we planned for a friend. I reached the counter after picking up all the requisite stuff and the cashier rang up a bill of $55.50.