Econometrics And Econometricians December 01, 2021

Revenue curves under Different markets

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Broadly markets are of three types as follows: 1. Perfectly competitive market 2.Monopoly market 3.Monopolistic competitive market 1.Revenue curve under perfectly competitive market or Perfect competition: Under perfect competition, a firm is a price taker. It cannot influence /change the market price. AR and MR curve 2. Revenue Curve Under Monopoly: A monopolist is a price maker. He is the single seller of the product in the market. Under monopoly, however, if a firm desires to sell more , he has to reduce price of the product. Thus, there is  negative relationship  between price of the product na ddemand for the product in a monopoly market. Accordingly, a Firm’s AR curve (or the demand curve or the priice line) slopes downaward.  3. Revenue Curve Under Monopolistic Competition: In a Monopolistic Competitive market, producers sell “differentiated product” which means products whose close substitutes are easily available in the market. Under Monopolistic Compet...
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Three Central Problems of an Economy

 Central Problems of an Economy

An economy is a system by which people of an area earn their living. Given the resources and technology of an economy, every economy faces three basic economic problems, Essentially, these are problems of making economic choices which are common to all the economies. This is why these are called central problems of an economy.

The three central (basic) problems of an economy are as follows:

1. What commodities to be produced and in what quantities?

- Every economy is faced with problem of economic choices such as what goods and services should be produced and in what quantities to be produced. Should more civilian goods & services be produced or more of military goods & services? Whether to spend more on basic education or higher education? Whether to produce more of consumption goods or capital goods? 

2. How to produce?

-This is basically the problem of choice of technique of production. Should an economy use more of labor-intensive technology or more of capital-intensive technology?

3. For whom to produce?

-This is essentially the problem of choice of distribution of commodities. Should more be produced for distribution among the poor section of society or mor be produced for distribution among richer section of society?

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Revenue curves under Different markets

Image
Broadly markets are of three types as follows: 1. Perfectly competitive market 2.Monopoly market 3.Monopolistic competitive market 1.Revenue curve under perfectly competitive market or Perfect competition: Under perfect competition, a firm is a price taker. It cannot influence /change the market price. AR and MR curve 2. Revenue Curve Under Monopoly: A monopolist is a price maker. He is the single seller of the product in the market. Under monopoly, however, if a firm desires to sell more , he has to reduce price of the product. Thus, there is  negative relationship  between price of the product na ddemand for the product in a monopoly market. Accordingly, a Firm’s AR curve (or the demand curve or the priice line) slopes downaward.  3. Revenue Curve Under Monopolistic Competition: In a Monopolistic Competitive market, producers sell “differentiated product” which means products whose close substitutes are easily available in the market. Under Monopolistic Compet...
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Problem of Deficient Demand: Measures to correct it

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Deficient Demand (Deflationary Gap) It refers to a situation when at full employment income level, AD<AS. In other words, when the planned AD is less than AD which is required to achieve full employment equilibrium, it is called deficient demand and it gives rise to deflationary gap. When deficient demand exists, economy’s income, output and employment decline thus pushing the economy into under-employment equilibrium. Impact of Deficient Demand Deficient demand decreases the level of output , National Income and price level in the economy because when AD<AS, there is less demand for inputs than actually available. As a result, prices of inputs start falling. This creates deflationary situation in the economy.   Measures to Correct Deficient Demand Fiscal Policy Measures Following are the measures to correct Deficient Demand/Deflationary Gap: (a) Decrease in Taxation: When the tax rate is decreased, more money will be available in the hands of people to spend. Purchasin...
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