Economics

Economics — No Comments
7
Dec 11

Type of Goods

In economics goods are those which satisfy the needs and wants of consumer, goods can be anything ranging from small pin to big aircraft, and that is the reason why it is important to classify goods. Given below are the various types of goods which are there –

Luxury Good – They are hose goods where an increase in income leads to bigger increase in demand for such goods. So for example if your income rises from $100000 o $150000 than chances are that you would end up spending majority of that $50000 increase in your income towards consumption of luxury goods like LCD television, iPods, mobiles etc…
Free Goods – These goods are those which are freely available like air, water (Though water cannot be said to be completely free).
Public goods – They are those goods which are used by all such as parks, roads and so on, public goods are often provided by the government to its people.
Private goods – They are opposite of public goods which means they cannot be used by all and one has o pay for it in order to consume private goods.
Substitute goods – They are those goods which can be used in place of other goods by the consumer.
Complementary goods – They are those goods which are used together and therefore the demand for such goods is interdependent. For detail explanation on substitute and complementary goods one can see the following article.
Normal Goods – They are those goods whose demand increases when the income of the consumer increases and vice versa.
Inferior Goods – They are those goods whose demand increases when the income of the consumer decreases. For detail explanation on normal and inferior goods one can see the following article.

Economics — No Comments
26
Oct 11

Hyperinflation Next Financial Crisis

Hyperinflation is a term which creates havoc among the minds of economist and governments across the world and if you ask person who know little about economics, they will tell you that hyperinflation is the worst thing to happen any country or economy. Hyperinflation is like spoilt child the more you try to control him or her the more they get out of your hands.

Before discussing about hyperinflation one should know what is hyperinflation, well hyperinflation is a condition under which the prices rise really fast and government and the central banks are unable to control those prices. Under hyperinflation the prices can rise 5 to 10 percent even on daily basis and that is the reason why governments just cannot afford to have inflation for too long because high in inflation for extend period can result in hyperinflation.

Under it the value of money falls so fast that all your fixed deposits or cash in your hand will be nothing because in hyperinflation the good which is available now at $ 1 will become $10 or even $100. For example in Zimbabwe which is facing hyperinflation the government had to print $100 million currency note and even then they were unable to control the hyperinflation. On a lighter side during hyperinflation you do not need to have money but bullets because no matter how much money you have it won’t be enough.

The way commodity and food prices are rising across the world I won’t be surprised if in future many developing and developed countries would be facing this monster called hyperinflation and if proper steps are not taken than it will be one of the biggest crisis for the world, even bigger than 2008 financial crisis.

Economics — No Comments
23
Oct 11

Non Tariff Barriers

In economics and international trade in order to curb imports from other countries many governments imposes barriers. There are two types of barriers one is called tariff barrier, which involve imposing taxes on imported goods so as to make them expensive as compared to domestic goods. This is the prime weapon which is used by all governments across the world in order to curb the import of goods they want to curb.

The other barrier is called Non tariff barriers, it does not imposes direct taxes but these barriers try to reduce imports indirectly by using many measures, non tariff barriers can be put in many ways like restriction in terms of quantity which can be imported, strict quality norms, putting many conditions which are impossible to meet, obscure licensing requirement, import quota and so on.

Economics — No Comments
14
Oct 11

Advantages and Disadvantages of Capitalism

Capitalism is the most common form of system which is followed by majority of the countries in the world, it refers to that economic system where the factors of production are not owned by government but individuals and prices of goods and services are decided by market. Given below are some of the advantages and disadvantages of capitalism –

Advantages of Capitalism

It leads to better use of resources because in this form of economic system a greater efficiency implies that much more profits and hence there is no question of under-utilization of resources.
It encourages entrepreneurship because people can set up easily their own business under this as compared to other economic system.
Under capitalism people have to work hard if they want to survive which is not possible in case of socialist economy where government provides amenities to people.

Disadvantages of Capitalism

Biggest drawback of this system is that private companies become so big that they become almost monopoly in their field which leads to exploitation by them in terms of charging the price for product or service which they produce.
In this system poor people are hit the hardest because the gap between the rich and poor keep rising under this system as there is limited government control.

It is due to the above disadvantages that many countries follow a mix of capitalist and socialist economic system where the important resources are controlled by government and rest are left to the market.

Economics — No Comments
15
Aug 11

Giffen Good

Giffen goods is the term which is used in the economics, giffen goods are those goods which are a paradox because for all other goods as the price of good rise the demand for that good falls and when the price of good falls the demand for that good rises but for giffen goods as the price of good rises the demand for these good rises instead of falling and when the price of good falls the demand also falls making it a paradox.

In real life giffen goods are hard to find, one example of giffen good can be price of stocks. During bull markets irrational investors tend to buy more as the price of stock rises and the same investor will sell when the price of stock decline during bear market. Another example of giffen would be when a person is poor he or she will eat those foods which have high calories and when the price of that food rise the poor will demand more of that food and reduce expenditure on all other food items and when the price of that food declines the poor will demand less of that food and divert the expenditure towards other food items because than he or she can get the calories from other food sources.

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