EconoMaldives

Definition According to the Partnership Act 1890, “Partnership is a voluntary association of people (from two to twenty) which is formed to carry on business with the view to make profit”. Partnerships are commonly found in farming, building and in the professions like law, accountancy etc. Advantages v   More capital can be raised v   Less legal formalities. It requires a contract called ‘Partnership Deed’ v   More efficient management can be formed v   There can be limited partners Disadvantages v   Ordinary partners have limited liability v   Partnerships are usually unstable and affects continuity v   Limited scope for expansion Difference between Sole Traders and Partnerships Sole Trader Partnership Firms v   Sole Proprietorship is a one man business v   Profits belong to the proprietor v   Losses can not be shared v   Division of labour is not possible v   It requires no agreement v   Effective control over the business

Consumer Spending  1. Who is a consumer? The person who uses the goods and services for final consumption 2. What is spending? Paying out money in buying or hiring goods and services 3. What factors influence Consumer Spending? Disposable Income (Take Home Pay)  Income Tax (A tax on consumer income)  Wealth (Those assets with a money value)  Inflation (A persistent rise in the price level)  Rate of Interest (Cost of Borrowing, Reward for Saving)  Social Security benefits (Aid to low-income members)  Borrowing (Obtaining money as a loan)  Age Composition of household population  4. On which items most lower-income earners spend a higher proportion of their income? They spend on necessities like food, clothing etc. 5. On which items most higher-income earners spend a higher proportion of their income? They spend on luxury items like buying motor cars, spending holidays abroad etc. 6. Why do young people spend more money? To s

Meaning Cost of production refers to the prices paid by the firm in order to obtain the materials and services required for the production process.  There are two types of costs. 1. Variable Costs It refers to the cost of variable factors  It changes with output  There is no variable cost at zero output  It is also known as Direct Costs  Examples include Electricity bill, cost of raw materials etc.  2. Fixed Costs It refers to the cost of fixed factors  It does not change with output  It occurs at zero output  It is also known as Indirect Costs  Examples include Rent for the factory, Insurance Premium etc.  Total Cost  The sum of variable cost and fixed cost forms the Total Cost. Total Cost = Variable Cost + Fixed Cost Marginal Cost  It is the change in the total cost brought about by changing the output by one unit. Average Total Cost  It is the cost per unit of output. Average Fixed Cost  It refers to the Fixed Cost per unit of output

Introduction  Distribution  Advertisement  Purpose of Advertising  Advantages of Advertising  Types of Advertisements  Informative Advertising  Persuasive Advertising  Media of Advertising  Television  Radio  Newspaper and Magazines  Posters  Circulars  Exhibitions  Own Fleet Displays

Cost  Cost refers to the amount of money spent by the firm on the goods and services which are required for the production process.  Revenue  Revenue refers to the income received by the firm for its goods and services.  Variable Factors  Variable Factors refer to the factors which change with output. Examples include Labour, Raw materials etc.  Fixed Factors  Fixed Factors refer to the factors which do not change with output. Examples include Factory, Machinery etc.  Short Run  It is a period of time over which at least one factor remains fixed in supply.  For example; a table making factory consumes more raw materials and electricity, but not the premises, to increase its output.  Long Run  It is a period of time over which all the factors of production changes in supply.  For example; a table making factory extends the carpentry to increase the capacity to meat increased demand.

Growth of Firms Meaning of firm Reasons for growth and ways to grow Integration and its types Economies of Scale  Meaning Relationship with average cost Types of Economies of Scale (internal and external) Diseconomies of Scale  Meaning Types of Diseconomies of Scale (internal and external) Survival of Small Firms  Measuring Size Reasons for survival

How do we measure the size of firms?  The size of the firm is measured on the basis of the following criteria.  The number of employees  The value of the capital employed  The value of the output  The market share etc  Reasons for the survival of small firms  1. Size of the market  Small firms do well if the market for the product is relatively small. The reasons that keep a market small in size are:  people’s preference of “something different” which cannot be produced under mass production,  some services and products cannot be standardized so that it can easily be provided by small firm,  people need individual attention for certain services like hair dressing provided by small firms,  geographical factors limit the market. Small firms are successful in that case, and  most of the expensive goods have a small market as their demand is less. Eg; sports cars, luxurious yachts etc. Again small firms succeed.  2. Specialist producers and distribu

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What is a firm?  A firm is a unit of management trading under a particular name. It is a decision making production unit. An industry is made up of all those firms producing the same commodity.  Why do firms grow?  Firms try to grow in size for several reasons:  To enjoy economies of scale: As the firm expands, it can reduce its average cost of production.  To obtain a larger market share: A larger firm can exercise more control over price and output in the market. Large firms can also enjoy monopoly power.  To achieve greater security: Firms can achieve greater security by extending the market for their products and producing a wide range of goods. (It is known as ‘Diversification’.) So that they can face the fluctuations in demand and seasonal variations.  How do firms grow?  Firms grow through diversification and integration. Diversification refers to the extension of the product range and its markets.  What is integration?  Integration refers to jo

Definition  National Income refers to the total money value of the output of goods and services produced by the factors of production owned by a particular country over a one-year period.  Methods of Measuring National Income  The National Income of a country can be measured in three ways.  1. The value Added Method/Output Method  It measures the total value added by each economic activity in the production of country’s annual output of goods and services.  The sum of value added at each stage of production is called as GDP. On to it is added the NIPA (including net profits, rent, dividends etc) to arrive at GNP. Depreciation of country’s stock of capital is deducted form the GNP to give NNP/National Income.  2. The Income Method  It measures the total of incomes (wages and salaries, rent, interests etc) earned by the factors of production used in the production of country’s annual output of goods and services. But, it does not include the transfer paym

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What is the 'General Equilibrium Theory' General equilibrium theory, or Walrasian general equilibrium, attempts to explain the functioning of economic markets as a whole, rather than as individual phenomena. The theory was developed by the French economist Leon Walras . It stands in contrast with partial equilibrium theory, or Marshellian partial equilibrium, which only analyzes specific markets. Walras developed general equilibrium theory to solve a much-debated problem in economics. Up to that point, most economic analyses only demonstrated partial equilibrium — the price at which supply equals demand and markets clear — in individual markets. It was not yet shown that equilibrium could exist for all markets at the same time. Uses of General Equilibrium Theory: General equilibrium theory tried to show how and why all free markets tended toward equilibrium in the long run. The important fact was that markets didn't necessarily reach equilibrium, only that they te

Introduction to National Income Introduction Gross Domestic Product  Gross National Product  Net National Product  National Income  Definition  Methods of Measuring the National Income  Reasons for Measuring the National Income  National Income and General Welfare  The Circular Flow of Income  Definition  A Closed Economy  A More Realistic Model  Injections  Leakages  Equilibrium  The Government Influence on the CFI  Economic Policy  Definition  The Economic Objectives  Instruments of Economic Policy  Confliction in Objectives

Cost  Cost refers to the amount of money paid out by the firm in obtaining resources required to carryout production.  Revenue  Revenue refers to the money received by the firm for its goods and services. Total Revenue is the total amount of money received by the firm. Average Revenue refers to the revenue received per unit of output sold.  Profit  Profit is that part of revenue which remains after deducting all costs.  Profit = Revenue – Cost  Break-Even Point  O utput Total Cost Selling Price Total Revenue Total Profit Profit/Loss 0 100 ---- ---- -100 Loss 1 300 200 200 -100 Loss 2 450 200 400 -50 Loss 3 600 200 600 0 Break Even 4 700 200 800 100 Profit 5 775 200 1000 225 Profit 6 800 200 1200 400 Profit It is the point where total revenue equals total cost. At Break-Even Point there will neither be a profit nor a loss.

Economies of Scale  Economies of scale refers to the fall in long run average cost of the firm due to expansion of its scale of production.  This is concerned with monetary or economic benefits enjoyed by a firm when it expands. Firms enjoy economies of scale when the output increases more than the percentage increase in inputs (This is also called increasing return to scale). For example; a firm increases its inputs by 10% and the output by 15%.  Economies of Scale and Average Cost  Average cost refers to cost per unit of output. It can be calculated by dividing the total cost by output. The table opposite makes it clear. Small firm Large firm Total cost 36 48 Output 4 8 Average cost 9 6 As per this example;  As the firm expands, its cost increased by 33.3% and output increased by 50%. Therefore the Average Cost has fallen from $9 to $6.  This fall in long run average cost is referred to as ret

Definition  The Circular Flow of Income (CFI) refers to the continuous circulation of income and expenditure among the economic agents.  A Closed Economy  The following illustrates the CFI through a simple model of an economy, which excludes the Government Sector and Foreign Trade Sector. Households provide firms with land, labour and capital  Firms employ the factors of production and make payments to households in the form of rent, wages and salaries, interest and profits.  Households use their income to buy goods and services form firms.  A More Realistic Model  The following diagram illustrates the CFI in an economy with Households, Firms, the Government and Foreign Trade Sectors.  Remember, the four sector model includes the income withdrawn from and injections into the economy.  The following assumptions will help you to study the realistic model.  An economy not only consists of Households and Firms, but also includes the Government  Countri

On 22nd July 2015, the Maldives parliament amended the constitution to authorise foreign ownership of land or freeholds in the Maldives with overwhelming support of 70 votes in favour, only a day after the amendments were introduced to the People’s Majlis. 11 MPs of the main opposition Maldivian Democratic Party (MDP) and 09 MPs of the Jumhooree Party (JP) also voted in favour of the unprecedented changes. The amendments allowed foreigners who invest more than US$1 billion to purchase land within the project site. At least 70 percent of the area when the project is completed must also be reclaimed land. The constitution previously prohibited foreign ownership of any part of Maldivian territory, but allowed leasing of land for up to 99 years. Here is how MPs voted. These 11 MPs from Opposition MDP Voted YES. Abdul Bari Abdulla MDP Abdul Gafoor Moosa MDP Abdulla Shahid MDP Ahmed Marzoog MDP Ali Azim MDP Ali Nizar