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Households are buyers and firms are sellers in the product market. In particular, households buy
the output of goods and services that firms produce.
Households are sellers, and firms are buyers in the factor market. In this market households
provide the inputs that firms use to produce goods and services.
5)Consumer expectations. Most often, this refers to whether a consumer believes prices for the
product will rise or fall in the future.
Indirect Costs
Indirect costs, on the other hand, are expenses unrelated to producing a good or service. An
indirect cost cannot be easily traced to a product, department, activity, or project. For example,
with Ford, the direct costs associated with each vehicle include tires and steel. However, the
electricity used to power the plant is considered an indirect cost because the electricity is used
for all the products made in the plant. No one product can be traced back to the electric bill.
Fixed Costs
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Fixed costs do not vary with the number of goods or services a company produces over the short
term. For example, suppose a company leases a machine for production for two years. The
company has to pay $2,000 per month to cover the cost of the lease, no matter how many
products that machine is used to make. The lease payment is considered a fixed cost as it remains
unchanged.
Variable Costs
Variable costs fluctuate as the level of production output changes, contrary to a fixed cost. This
type of cost varies depending on the number of products a company produces. A variable cost
increases as the production volume increases, and it falls as the production volume decreases. For
example, a toy manufacturer must package its toys before shipping products out to stores. This is
considered a type of variable cost because, as the manufacturer produces more toys, its
packaging costs increase, however, if the toy manufacturer's production level is decreasing, the
variable cost associated with the packaging decreases.
Operating Costs
Operating costs are expenses associated with day-to-day business activities but are not traced
back to one product. Operating costs can be variable or fixed. Examples of operating costs, which
are more commonly called operating expenses, include rent and utilities for a manufacturing
plant. Operating costs are day-to-day expenses, but are classified separately from indirect costs –
i.e., costs tied to actual production. Investors can calculate a company's operating expense ratio,
which shows how efficient a company is in using its costs to generate sales.
Opportunity Costs
Opportunity cost is the benefits of an alternative given up when one decision is made over
another. This cost is, therefore, most relevant for two mutually exclusive events. In investing, it's
the difference in return between a chosen investment and one that is passed up. For companies,
opportunity costs do not show up in the financial statements but are useful in planning by
management.
Controllable Costs
Controllable costs are expenses managers have control over and have the power to increase or
decrease. Controllable costs are considered so when the decision of taking on the cost is made by
one individual. Common examples of controllable costs are office supplies, advertising expenses,
employee bonuses, and charitable donations. Controllable costs are categorized as short-term
costs as they can be adjusted quickly.
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Risk implies a degree of uncertainty and an inability to fully control the outcomes or
consequences of such an action. Risk or the elimination of risk is an effort that managers employ.
However, in some instances the elimination of one risk may increase some other risks. Effective
handling of a risk requires its assessment and its subsequent impact on the decision process. The
decision process allows the decision-maker to evaluate alternative strategies prior to making any
decision. The process is as follows:
The problem is defined and all feasible alternatives are considered. The possible outcomes for
each alternative are evaluated.
Outcomes are discussed based on their monetary payoffs or net gain in reference to assets or
time.
Various uncertainties are quantified in terms of probabilities.
The quality of the optimal strategy depends upon the quality of the judgments. The
decision-maker should identify and examine the sensitivity of the optimal strategy with respect
to the crucial factors.
Whenever the decision maker has some knowledge regarding the states of nature, he/she may be
able to assign subjective probability estimates for the occurrence of each state. In such cases, the
problem is classified as decision making under risk. The decision-maker is able to assign
probabilities based on the occurrence of the states of nature.
Use the information you have to assign your beliefs (called subjective probabilities) regarding
each state of the nature, p(s),
Each action has a payoff associated with each of the states of nature X(a,s),
We compute the expected payoff, also called the return (R), for each action R(a) = Sums of [X(a,s)
p(s)],
We accept the principle that we should minimize (or maximize) the expected payoff,
Execute the action which minimizes (or maximize) R(a)
The choice of an optimal action is based on The Bayesian Decision Criterion according to which an
action with maximum Expected Monetary Value (EMV) or minimum Expected Opportunity Loss
(EOL) or Regret is regarded as optimal.
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Money markets are the markets for short-term, highly liquid debt securities. Examples of these
include bankers’ acceptances, repos, negotiable certificates of deposit, and Treasury Bills with
maturity of one year or less and often 30 days or less. Money market securities are generally very
safe investments, which return relatively; low interest rate that is most appropriate for
temporary cash storage or short term time needs.
1. Financing Trade
The money market provides financing to local and international traders who are in urgent need of
short-term funds. It provides a facility to discount bills of exchange, and this provides immediate
financing to pay for goods and services.
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International traders benefit from the acceptance houses and discount markets. The money
market also makes funds available for other units of the economy, such as agriculture and
small-scale industries.
For example, the short-term interest rates in the money market represent the prevailing
conditions in the banking industry and can guide the central bank in developing an appropriate
interest rate policy. Also, the integrated money markets help the central bank to influence the
sub-markets and implement its monetary policy objectives.
3. Growth of Industries
The money market provides an easy avenue where businesses can obtain short-term loans to
finance their working capital needs. Due to the large volume of transactions, businesses may
experience cash shortages related to buying raw materials, paying employees, or meeting other
short-term expenses.
Through commercial paper and finance bills, they can easily borrow money on a short-term basis.
Although money markets do not provide long-term loans, it influences the capital market and can
also help businesses obtain long-term financing. The capital market benchmarks its interest rates
based on the prevailing interest rate in the money market.
Also, when faced with liquidity problems, they can borrow from the money market on a
short-term basis as an alternative to borrowing from the central bank. The advantage of this is
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that the money market may charge lower interest rates on short-term loans than the central bank
typically does.
The grandfather clause in the Protocol of Provisional Application in GATT 1947 has not been
carried forward to WTO. WTO contains an improved version of original GATT rules-GATT Rules
1994.
GATT commitments are provisional in nature, which after 47 years the government can make a
choice to treat it as a permanent commitment or not. On the other hand, WTO commitments are
permanent, since the very beginning.
The scope of WTO is wider than that of GATT in the sense that the rules of GATT are applied only
when the trade is made in goods. As opposed to, WTO whose rules are applicable to services and
aspects of intellectual property along with the goods.
GATT agreement is primarily multilateral, but the plurilateral agreement is added to it later. In
contrast, WTO agreements are purely multilateral.
The domestic legislation is allowed to continue in GATT, while the same is not possible in the case
of WTO.
The dispute settlement system of GATT was slower, less automatic and susceptible to blockages.
Unlike WTO, whose dispute settlement system is very effective.
As an aggregate measure of production, GDP is equal to the sum of the gross value added of all
resident institutional units engaged in production, plus any taxes on products and minus any
subsidies on products. Gross value added is the difference between output and intermediate
consumption.
the sum of the final uses of goods and services (all uses except intermediate consumption)
measured in purchasers' prices, minus the value of imports of goods and services;
the sum of primary incomes distributed by resident producer units.
Purchasing power parities, abbreviated as PPPs, are indicators of price level differences across
countries. PPPs tell us how many currency units a given quantity of goods and services costs in
different countries. Using PPPs to convert expenditure expressed in national currencies into an
artificial common currency, the purchasing power standard (PPS), eliminates the effect of price
level differences across countries created by fluctuations in currency exchange rates.
Purchasing power parities are obtained by comparing price levels for a basket of comparable
goods and services that are selected to be representative of consumption patterns in the various
countries.
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PPPs make it possible to produce meaningful indicators (based on either price or volume)
required for cross-country comparisons, truly reflecting the differences in the purchasing power
of, for example, households. Monetary exchange rates cannot be used to compare the volumes of
income or expenditure because they usually reflect more elements than just price differences, for
example, volumes of financial transactions between currencies and expectations in the foreign
exchange markets.
i) Revenue Account
Revenue Accounts are those accounts that report income of the business and therefore have
credit balances. Examples include Revenue from Sales, Revenue from Rental incomes, Revenue
from Interest income, etc.