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Economic Hypothesis Privatization. In order to guarantee and secure entrepreneurship, private property rights must be established and protected by law. Therefore, existing government property - farmlands, factories, machinery and equipment are to be transferred to private owners according to privatization theory. In addition, it is assumed that new private companies must be allowed to form and develop. Realization of efficient privatized economy requires the dismantling of public monopolies and the creation of antitrust laws to sustain competition.
Therefore, privatization without de monopolization will be of limited benefit. Pure capitalism. Pure capitalism is characterized by the private ownership of resources and the use of market and price mechanisms to coordinate and manage economic activity. In this system each participant is motivated by own self-interests, therefore income maximization is obtained through individual decision making. Because commodities and services are produced under competitive conditions, there are many independently acting buyers and sellers, therefore economic power is widely scattered. Advocates of pure capitalism allege that such economic system is favorable for efficient use of resources, output and employment stability as well as rapid economic growth (Canterbery, 182).
The essence of pure capitalism is in keeping government from interfering with the economy. Thus, governments role is limited to protecting private property and establishing legal basis for free markets. Free trade. Free trade is a medium through which the world economy can obtain a more efficient allocation of resources and a higher level of well-being. Natural, labor resources and technological potential of each country are different; therefore each nation can produce particular goods at different costs. Being a participant of free trade, each nation should produce and exchange these specialties for goods for which its domestic opportunity costs are high relative to those of other nations.
As a result of this scheme, the world can realize the advantages of geographic and human specialization. Barriers imposed by governments, namely tariffs and quotas, eliminate gains from the specialization. One of the main benefits of free trade is that it promotes competition and discourages monopoly. Demand - supply interaction. By the majority of economists demand is referred to a schedule representing the willingness of buyers to purchase a given product during a specific time period at various prices.
According to the law of demand, consumers are inclined to purchase more of a product at a low price than they will at a high price. Changes in one or more of the basic determinants of demand consumer tastes, the number of buyers in the market, the money incomes of consumers, the prices of related goods, and consumer expectations will cause the market demand curve to shift. On the other hand, supply is a schedule showing the amounts of a product which producers would be willing to offer in the market during a given period at relevant price. The law of supply says that producers will offer more products at a high price than they will at a low one. A change in resources process, production techniques, taxes or subsidies, the prices of other goods as well as price expectations will the demand curve to shift. The interaction of demand and supply curves is considered to be a market by the numerous economists.
Under market competition, this interaction adjusts price to the equilibrium point, where quantity demanded and quantity supplied of product are equal. Due to the ability of the market to synchronize selling and buying decisions through supply-demand interaction, potential surpluses and shortages are avoided (Clay, 53). Fiscal policy. Fiscal policy is defined as purposeful manipulation of government expenditures and tax collections to promote full employment, price stability and economic growth. Built-in stability refers to net tax revenues that change directly with the level of Gross Domestic Product. During a recession, the public budget automatically moves toward stabilizing deficit, during expansion the budget automatically moves toward anti-inflationary surplus.
The application of appropriate fiscal policy are subject economic problems, in particular, fiscal policy may appeared ineffective or inappropriate by unforeseen or force-majeure events occurring within the world economy. In addition, fiscal policy may hasten changes in exchange rates which weaken its effects. Moreover, many economists claim that contemporary fiscal policies fail to consider the effects of tax changes on aggregate supply (Canterbery, 316). Economies of scale.
Economies of scale are production advantages deriving from increased market and firm size. A large corporation often can select more efficient production techniques than can a small-scale company. For instance, large manufacturer of autos can use assembly lines with computerization and robotics, while smaller producers must settle for less advanced technologies. Markets have increased in scope over time and firms have increased in size, allowing more efficient production methods to be used. Accordingly, labor productivity has increased as well as economic growth has occurred. From the critical economic point of view, economies of scale reflect companys production possibility curve, enabling a firm to utilize given resources more efficiently, avoiding potential unemployment (Clay, 27 - 28).
Business Cycles. Economy has been characterized by fluctuations in domestic output, employment or unemployment, and the price levels, which comprise the hypothesis of business cycles. Although having common phases peak, recession, trough, and recovery business cycles vary greatly in duration, intensity and consequences for economy. The majority of economists explain the business cycles in terms of casual factors, namely innovations, political events, and money creation (Clay, 93).
The business cycle affects all sectors of the economy, but in varying ways and degrees. Thus, the cycle has greater output and employment ramifications in the capital goods and durable consumer goods than it does on services and nondurable goods industries. Bibliography Ray E. Canterbery, The Making of Economics, 7 th ed. Belmont: Wadsworth Publishing Company, 1999 Clay H. , Economics and American Capitalism, New York: The Macmillan Company, 1994
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Research essay sample on Economies Of Scale Demand Curve
