Economics

Economics — No Comments
7
May 12

Discretionary Income Meaning

Discretionary income is an important concept in economics because it refers to that cash which remains in the hands of individual after paying all his or her expenses like food, shelter, cloths and also taxes. It can be better understood with the help of an example; suppose your yearly salary is $90000 and your basic expense for the year is $40000 and taxes of $30000 than your discretionary cash for the year would be $20000. One can use this available cash for spending on luxury items like expensive watches, mobiles, vacations and so on, companies which are in luxury segment targets such customers who have greater discretionary cash available with them.

It should not be confused with disposable income and the difference between the two is that while disposable income is cash left after paying taxes and therefore it does not reflect how much one has paid for basic expenses which is the case with discretionary income. Hence disposable income will always be greater than discretionary income.

Economics — No Comments
4
May 12

Relation between Money and Happiness

People think that money can buy everything for them and to an extent it is true also but there are some things which money can’t buy and happiness is one of them. It is a debatable topic whether money and happiness go hand in hand or not.

In the beginning if you are short of funds and once you start earning money then it can certainly lead to happiness because imagine a situation where you have $1000 dollar and you want to go to vacation but it costs $5000 then you would be sad because you missed happiness arising out of good time you would have spent if you were on a vacation. If you had $5000 then you would have been happy so you can say that when a person makes a transition from low income to high income group then there is a positive correlation between money and happiness which means the more money you earn the more happy you become because you start doing things which was not possible earlier due to lack of funds.

Now take the case of wealthy people who have millions of dollars, but still they are not happy. Their grief may be due to their strained relation with their relatives or due to some illness which is incurable, and many such factors. In real life one see many such examples where a person is wealthy still from inside he or she is not happy and no matter how much money they have, they remain unhappy. So in case of these kind of people one can say that there no correlation between money and happiness.

As one can see from above there is no set rule that if you have money you would be happy and if you do not have it then you would be unhappy. In reality there are many variables apart from money which decides whether you would be happy or not.

Economics — No Comments
7
Apr 12

Opportunity Cost Examples

Opportunity cost is that cost which is measured in monetary or in real terms for things or activity which you might have done if you were not doing some other thing or activity. It is the most basic concept of economics, to understand it better given below are some of the examples of opportunity cost –

  1. If as a consumer you have $500 than with that money you can either buy a laptop or a 3d television now if you buy a laptop than your opportunity cost in economics would be 3d television.
  2. Another real life example would be suppose you have 5 hours to spare and in that 3 hours you can either go for a movie or at your friend’s house than if you decide to go to your friend’s house than your opportunity cost would be movie which you were not able to see.
  3. Corporate also have opportunity cost, now suppose a corporate has 100 million dollars now with that money he or she can either invest that money for future expansion of business or keep it in the bank as deposit for interest income. If the corporate decide for future expansion than opportunity cost will be interest which he or she might have earned if it had deposited that money into the bank.
  4. Government also has opportunity cost problem, example of it being when deciding the budget government has to decide how much to allocate education and health and how much to allocate it for war and security expense because any increase in war related expense would mean that government has less money for education and health related expense.
Economics — No Comments
29
Mar 12

Money in Economics

Money the word itself brings smile to majority of human beings and all of us want to have as much cash as possible and often that is the reason for stress, above is the real life situation but as far as economics is concerned money has different meaning. In economics money is something which satisfy your needs and wants so for example if you have cash than you can buy with that cash needs like food, shelter, clothing and wants like expensive cars, 3d television, holidays and so on.

In real life people consider money as absolutely important and think that without it one cannot survive but as far as economics is concerned it treats money differently, according to economics money or cash is just a medium to buy goods and services which are essential for survival. Money or cash is just paper in economics and if people start exchanging goods and services for something other than cash than cash has no value. Consider a situation where you are put in an island with millions of dollars but on that island nobody knows about dollars and it is not used as a means of exchange than all your millions of dollars are of no use and you cannot even buy a needle with all those millions of dollars

In ancient times people used to follow barter system where goods and services were exchanged for goods and services and at that time there was no money still people used to survive, so the point is that money is important because it is a means of exchange and not for any other reason.

Economics — No Comments
17
Mar 12

Difference between Tariff and Quota

Both tariff and quota are used in the context of international trade and many people use both the terms interchangeably, but the fact is that they both are completely different things the only similarity between the two is that both are used for discouraging imports and promoting domestic goods and industries. Given below are some of the differences between tariff and quota –

  1. While tariff is imposed by the governments in order to make goods expensive which are coming from foreign countries while a quota refers to maximum quantity which can be imported from foreign countries.
  2. Tariff results in more income to the government while quota does not result in extra income for the government.
  3. There is no limit on the quantity of goods which can be imported from foreign countries in case if there is tariff on that good but in case of quota in no circumstance one can import more than stipulated quaintly of good in case if there is quota on that good.
  4. A tariff results in rise in price of a good which consumer has to bear if he or she buys that good while quota does not result in any rise in price.
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