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Law of Demand The law of demand is one of the fundamental laws of economics. The law of demand explains the relationship between the price and demand of a commodity. It is a matter of practical experience that when the price of a commodity increases, its demand decreases and when it decreases, its demand increases. … Read more
Types of demand (i) Demand for consumer goods and producer goods- Consumer goods are those final goods which directly satisfy the needs of the consumer. Such goods are: bread, milk, clothes, furniture etc. Capital or producer goods are those goods which help in the production of other goods and which indirectly satisfy the needs of … Read more
Theory and Nature of Demand The theory of demand plays an important role in business decision making. In every business firm, there are many issues on which the executives have to take decisions such as what to produce, when to produce, how to produce, what will be the quality of the output etc. The theory … Read more
Determination of profits under perfect competition – Modern profit theory Selling Powers of Perfect Competition – Modern Profit Theory Profit is demanded like the reward of any other factor-service and the power of the product is determined by it. This theory explains the profit itself as the business corporation and profit as its net income. … Read more
Marginal Productivity Theory of Profit- Like any other factor, an attempt has been made to explain the determination of remuneration of an entrepreneur in terms of his marginal revenue productivity. Angsworth, Chapman, Stigler and recently Stonier and Hague have explained profit determination with the help of this theory. According to this theory, profit as a … Read more
Shackle’s Profit Theory Professor Shackle has extended Prof. Knight’s theory by introducing expectations under conditions of uncertainty. According to Shackle, expectations are of two types: general and specific. General expectations relate to general variables of the entire economy. They relate to future macro variables such as general price level, gross national product (GNP), balance of … Read more
Profit Theory of Bearing Uncertainty Professor Frank H. Knight considers profit as the reward for bearing those risks and uncertainties which cannot be insured. He distinguishes between insurable and uninsurable risks. Some risks can be measured to the extent that their occurrence can be calculated statistically. Risks like fire, theft of goods and death due … Read more
Profit Theory – Risk The risk theory of profit is associated with the name of F.B. Holley, who considers risk taking to be the main function of the entrepreneur. Profit is the residual income that the entrepreneur receives when he takes a risk. The entrepreneur puts his business at risk and in return receives a … Read more
Gross Profit and Net Profit Profit is the difference between the total revenue and total cost of a commercial and industrial concern. In this regard it is important to note that the term total cost includes all expenses incurred in an concern during a given period. These expenses include cost of raw materials, cost of … Read more
Schumpeter’s Innovation Profit Theory Professor Schumpeter considers that profits arise from dynamic changes resulting from innovation. To begin with, he takes a capitalist closed economy in static equilibrium. A ‘circular flow’ that repeats itself forever characterises this equilibrium. Such a static state is a perfectly competitive equilibrium. In it, the price of each commodity is … Read more