RENT THEORY OF PROFIT

RENT THEORY OF PROFIT        The rent theory of profit is associated with the name of American economist, Francis A. Walker. According to him, profit are of the same genius as rent. The main points of Walker’s theory of profit can be summed up as such. 1.      Profit is rental in character. Just as superior grades of land earn more rent than the inferior grades of land, similarly superior entrepreneur due to their exceptional ability or opportunity earn more profit than the inferior...

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THE ROLE OF PROFIT IN THE OPERATION OF A FREE ECONOMY

THE ROLE OF PROFIT IN THE OPERATION OF A FREE ECONOMY              There are various theories which have been advanced from time to time regarding the nature of profit in a competitive economy. Almost all of them differ basically from one another and are inadequate to explain the actual role of profit in the operation free economy. The most important theories are:         I.            Hawley’s...

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THE ACCOUNTING AND ECONOMIST DEFINITION OF PROFIT

THE ACCOUNTING AND ECONOMIST DEFINITION OF PROFIT (A) ACCOUNTING DEFINITION OF PROFIT:                There is no satisfactory definition of the term profit. Generally profit of a firm is defined as the access of revenue over its current costs. The word cost carries. Different meaning with economists and accountants, in accounting, the term profit equals total revenue – explicit costs. This is the profit used by accountants to determine a firm’s taxable...

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PROFIT

PROFIT MEANING OF PROFIT:       Profit is a basic concept in market economy. Profit acts an incentive mechanism for business investment. Higher profits provide incentives for business growth. Profit also acts as an automatic signal for the allocation and reallocation of scarce resources. Profit which is the hub of all economic activities has no precise definition of its own, in fact it is the most controversial topic of economic theory. To get an accurate idea of profit it is necessary to first distinguish gross profit from...

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SHIFT IN SUPPLY CURVE

SHIFT IN SUPPLY CURVE:             When there is a change in quantity supplied of a good resulting from a change in any of its determinants, other than the price of a good. It causes the supply curve shift rightward or leftward. The supply curve can shift due to advance in technology, change in production cost, climatic changes etc. REAL WAGE:                The amount of goods and services which a worker actually...

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SCALE OF PRODUCTION

GLOSSARY SCALE OF PRODUCTION:                  Scale of production is set by the size of pant, the number of plants installed and the technique of production adopted by the producer. The scale of production is classified as under: (a) Small Scale Production. (b) Large Scale Production. (C ) Optimum Scale of Production (a) Small Scale Production: If a firm produces goods with small sized plants, the scale of production is said to be small. Small scale of production...

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KINKED DEMAND CURVE

GLOSSARY KINKED DEMAND CURVE:          It is a demand curve which illustrates price stickiness. The Sweezy’s model analyses the effects of possible reactions of the rival firms on the demand curve for the product of the firm which initiates the change in price. According to this model if one raise the price, then firm A will loose a part of its market share to the rival firms, one the other hand, if firm A reduces the price of its product, the rival firms follow the suit, then firm A does not lose or...

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CONSUMER’S EQUILIBRIUM

CONSUMER’S EQUILIBRIUM:            Consumer’s equilibrium or optimum is achieved when consumer ends up on the highest indifference curve possible with his given income. The optimum position is attained at the point where the consumption possibility line (budget line) is just tangent to the highest indifference curve from below. INFERIOR:         When with increase in income of a consumer, the demand for a certain good decreases, that good is called inferior good....

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BACKWARD BENDING SUPPLY CURVE OF LABOR

GLOSSARY BACKWARD BENDING SUPPLY CURVE OF LABOR:       The supply curves are positively sloped. However, in case of labor supply curve, there can be exception to it. The labor supply curve can be backward bending. The labor supply curve slopes upward from left with the increase in wage rate. After a certain rise in wage rate, the high wage individuals reduce their work and prefer to consume more leisure. The supply curve of labor then bends backward Further increases in the wage rate reduces the quantity of labor supplied...

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BARRIERS TO FOREIGN TRADE

BARRIERS TO FOREIGN TRADE      In order to shelter home industries, foreign trade had been obstructed in various forms. They in brief are: 1. Prohibition of imports or exports. 2. Custom duties. 3. Quotas. 4. Exchange control. 5. Preferential treatment. 6. Import monopolies. 7. Import levies. 1.      Import and export prohibition: The government of a country by law may totally ban the import or export of certain commodities for reasons of health or for promoting the growth of certain...

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PROTECTION

PROTECTION      A policy of encouraging domestic industries by the imposition of tariffs on foreign products and payment of bounties to home industries is known as protection. An import duty aims at discouraging imports by making them dearer to the domestic consumers. The payment of bounty to home industry artificially stimulate exports and thus enables it to stand omits own feet in due course of time. After the end of napoleon war, i.e. in the 19th century, protection appeared in U.S.A later on Germany, imposed custom...

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FREE TRADE

FREE TRADE THE THEORY OF FREE TRADE               A policy of unrestricted international exchange of goods is known as the policy of free trade. Adam smith like the Physocratics of France, was a staunch advocate of free trade. He was of view that state should not interfere in the internal economic life of the citizens of a country as it hampers economic progress. He was against putting any kind of restrictions on the imports and exports of commodities. In the words of Adam smith...

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