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This is a site dedicated to give you a simple yet complete understanding on basic principles of economics.This site is free to use and our team would be more than happy to help you on any topic relating to economics. As we are still developing this blog we appreciate your patience. Any enquiries and questions pease direct to our e-mail.
Balance sheet
A balance sheet is a statement showing all the assets, liabilities and owners equity at any given time it is drawn up. A balance sheet maybe produced due to periodic business analysis, to provide (to a lending organisation) an overall picture of the value of the business to take out a loan or to obtain figures to do business ratios. A balance sheet details the values of all the assets and liabilities the business has and the amount of owner’s equity invested in the business.
Profit and loss statement
A profit and loss statement is a document showing how much money a company earned over a given period of time (usually a year). How we calculate this is by first summing up all the money the company eared over the time and subtract the amount the company incurred as expenses over that time, we get the profit or loss the company made over that period.
Different types of budgets help the organisation monitor and control different aspects of the business. It helps to coordinate allocations of resources, expenses monitored and rates of production forecasted for future growth. The main types of budgets in an organisation are:
Sales/Revenue budget- It shows the amount of money that flows into the business at any point in time, then number of units (products or services) that would be sold and at what price they would be sold at. This information could help the organisation e.g. in hiring more staff to handle the expected rise in sales.
Production budget- It shows the current levels of stock and rate of production. It would also take note in the seasonal fluctuations in the sales budget to meet current demand. This could help the organisation maximise their storage and logistics and lower costs associated in these areas.
Cash budgets- This budget monitors the cash flows in the business, and the cash reserves. The main reason for monitoring this budget could be to make sure that the organisation is always at a position to pay its current liabilities and ensure there is no shortage of cash for operational expenses and day to day running of the organisation.
Purchases budget- A purchases budget records and controls the raw materials the organisation buys. It takes into account the production budget and matches the raw materials that would be required to keep inline with the rate of production.
Expenses budget- An expense budget is sub divied into 3 boroad catogeries,i.e.:Marketing,Sales and Financial. As sales grow or there is a new marketing campaign this is the budget that would monitor and controll the expenses that relates to these activities.This would simplify the cost ratio analisis.
Capital budget- A capital budget would accommodate the expense in buying a captal intensive asset, and example of an item that belongs to the capital budget could be a new delivert truck or an additional wharehouse.
One of the significant features in the modern economy is the developing trend of outsourcing. What is out sourcing? it is the precess of handing out parts of operations in an organisation. The most typical of outsourcing is cleaning services in an organisation, while the organisation by itself does not hire personel for cleaning or own any equipment for cleaning its premises, it contracts out that work to another organisation offering such services.Not all out sourcing is this easy to identify, for example an airline ticketing company might outsource maintanance and software security to another company. In this instance while the physicall monitors and desk tops belong to the company the software and security protocolts are under the ownership of another company. The benifits of this could be that the ticketing agency then could focus on hiring people with good marketing skills and not worry about software systems ( which after all the company just wants to sell travell packages, not involuve itself with computer systems maintanance). Out sourcing is not just limited to commerce, some countries have out souced many strategic operations as well, for example Seychells have out sourced their defense and army to French forces. Out sourcing enables organisations to stramline their operations and specilize in a focused area of business.
Production possibility curve. (PPC)
The production possibility curve is a model used to show the output possibilities of an economy.
While a real economy produces hundreds of thousands of goods and services we use this simplified model to show the relationship in the opportunity cost of things and also demonstrate the capacity of the economy.
In the diagram we have production possibility curve for 2 products DVD players and microwave ovens.
The blue line represents all combinations of both products that could be produces simultaneously in an economy.
(Insert diagram here)
At point A in the diagram you could produce 2000 microwave ovens and 700 DVD players. The opportunity cost of producing the 2000 microwave ovens are the 300 more DVD players that could be produced if not for diverting resources for the production of the microwave ovens. The same could be said for 1000 more microwave ovens that could be produced if not for the production of 700 DVD players. In economics we call this the opportunity cost. (Hyper link to all pages with this word)
At point B we see that 1000 microwaves could be produced while producing 300 DVD players. At this point we see that there is opportunity to produce more of both products since we are well within the PPC we call this under production.
If we wanted to produce the combinations of both products at point D it is not possible with the resources available or utilized at the moment. This however is probable not be a permanent situation. Better technology , more land, labour and capital could result in the production possibility curve expanding on both horizons that far exceeds current production capacity. In economics we call this positive economic growth.
The international monetary fund was set up in 1944 at a United Nations conference in Bretton Woods, New Hampshire, U.S. . The main purpose of the fund was to set up a frame work to organise and coordinate economic co-corporation so countries would not make the same mistakes that to the great depression. The IMF helps nations overcome short term budget deficits and gives economic advice on developing sustainable growth in its member countries.
Macroeconomics and microeconomics.
The study of economics is divided into 2 main parts Macroeconomics and Microeconomics.
Macroeconomics is dealing with the economy as a whole taking into consideration the whole economies Gross Domestic Product, inflation rates and Interest rates. In this we deal with the study of the economy as a whole and its trends and current and future predictions. E.g. Australian GDP in the years 2005 – 2006 had a positive growing while increases in inflation rates were low while interest rates kept going up.
(Insert diagram)
Microeconomics deals with specific sectors and industries in an economy. In this field we look at growth rates and changes that take place within this industry over time, its current trends and future growth. E.g. In Australia in the year 2005- 2006 because of sustained growth and rising wages in the labour market there was a lot of pressure building up in the housing and real estate industry. This resulted in a rise in prises of real estate specially in metropolitan areas and suburbs. Because of the sustained economic growth the Federal Reserve of Australia raised interest rates, this drove down the pressure in this industry as less people could now afford to take out loans to buy housing. After a while (i.e. a few months) the demand for real estate kept rising again till the government hiked the interest rates yet again.
(Insert diagram)
Investments can turn your money into gold. This means that you can have more value for you money once you have put them on functional investments.
However, investments can also be a breeding ground for dreadful losses. If you can have a thousand and one ways to earn more from your money, you can have the same amount of chances of losing them. That is why many people don’t take chances of gambling their money.
There are ways on how to save money on investments. In this way, you can be sure that you have only spent the right amount needed to earn the right profits.
If by any chance something happens because no one knows how to foresee the flow of the market, you will be able to cope up with your losses because you were able to save more on your investments.
So to get you started on saving more money on your investments, here are some tips to live by:
1. Never put money on something you can’t afford
An investment is one great risk. It would be better to put more risk by investing on something that you can afford.
Don’t try to borrow money just to invest it on something else. As they say, money doesn’t grow on trees. So never expect your money to grow instantly. It would be better if you will lessen the risk of losing your money by only investing on things that require little payments.
2. Do not go with the flow
Never invest on something that you aren’t positively sure why you want to do so. It is best not to invest on a particular venture if you don’t have an exact cause for doing so.
Even if many people are investing on stock exchange, don’t go with the flow if you think that you don’t have firm motives to engage in such investment.
If you know your motives, you will surely know what to do next. You cut back the possible unnecessary fees you will be required to pay.
3. Compare investments
Try to compare investments. In this way, you can evaluate those investments that only require little amount of money but can deliver higher chances of gaining profits.
Moreover, comparing investments will let you identify the right venture that can let you save more money.
Good decisions will always allow you to save more money. So if you have made good choices on investments, you can be sure of your family’s future with more savings than the usual.
Running your own business can be both rewarding and fun. But it does not end there. Alongside all the joys and the rewards are pressures that make doing business very stressful.
For many entrepreneurs, the most common source of stress is the workload. As people would say, “If you want to become successful, you have to work extra hours”. This is particularly what is happening on many entrepreneurs. They work harder and longer. And the pressure is different if you are running your own business than working 40 hours a week.
Stress also mounts up because of several tasks related to work added by the responsibilities at home. Usually, moms have tasks at work, at the same time, have to do chores at home. Further task is contributed by the responsibilities to her kids.
Another stressor is the financial aspect of the business. Seldom to we see businesses without dept. Most of them have certain amount of loan somewhere that needs to be paid. This causes great stress on the part of the entrepreneur; balancing of funds and converting all the expenses into income. Getting back the investment quickly adds stress to entrepreneur as well.
Entrepreneur has to make decisions correctly and quickly. And for those who are only beginning to introduce themselves to this kind of environment, it may be very stressful.
All these contribute to the problem of an entrepreneur. To reduce the stress from these, here are some things you can do:
Start at your desk – Clutters can contribute to the present stress you are experiencing. So before doing something today, make sure that you clean up all the mess and put away the things that do not have to be on your desk. A clean desk will be more pleasant to work on.
Device a system – Daily planners will make things easier for you. If you have lots of things to do, do not intent to finish them all at the same time. Make a schedule when to do this and when to do that. Thinking the all the tasks that need to be done will not solve your problem. Do them one at a time. In this way, you will certainly accomplish one after another.
Multiply yourself – If you think you cannot do an enormous task on your own, hire people who can help you. Remember that one good trait of a successful entrepreneur is he knows when to seek help. Two heads are better than one and four hands are better than two right?
Make a business plan – Everyday, you are tasked with several things to do. In order to get things organized, it would be better to make a plan and stick to that plan. This will keep you on track and prevent you from doing things that you don’t need to do. Remember that time is crucial in running your own business. Time means money so better make the most out of every second that passes. Make sure that you know where you are heading at with the plan you have devised.
Designate tasks – You cannot do everything. But even if you do, you cannot make it efficiently. Why? Because you are too occupied with the thought that you have so many things to do. Make sure that you designate tasks to the right person. In this way, things would not be so hard and things will be done fast.
Learn the business everyday – As days progresses, you will surely have some rises and falls. These are called experiences. Learn something from these experiences so that the next time you encounter the same thing, you would know what to do. In this way, you will avoid the same mistake you have done before.
And finally… relax – Stressing too much will not do any good to you. What you should do is to relax. This will let you think properly. Remember that you are making crucial decisions every now and then and you cannot make correct decision if you are always tensed. Take time to breathe and take time to clear your mind from all the worries in front of you. Soon enough, you are back on track better and livelier.
Man has unlimited wants which has to be satisfied with limited resources. Over the centuries man has tried to find an answer to this problem. Three distinct different approaches to manage this resource have been attempted.
Traditional - In the traditional approach to managing the economy is giving the highest priority to farming and agriculture. Farming was given the highest importance since that was the biggest employer in the economy. The jobs in this system of economy is passed down from one generation to the next (e.g. a farmers son would be a farmer).There was not much thought given to improving the efficiency or technology of farming in any formal way.
Command – This system of economy functions by the direction of a single central command. Usually this could be a leader (e.g. King , Draconian Dictator, a central council – communist council). The central command decides which industries in an economy are important and the wage rates and allocates number of people for each task in the economy. Interest rates and property ownership and taxation are decided by the central authority. It is characteristic to have extensive research and development centres to improve efficiency and reliability.
Market – In the market system of economics the importance to various sectors of economy are given priority to this potential in giving back profits, thus most profitable industry is given the highest priority. The wage rates, Interest rates are determined by market forces (i.e. Supply and demand). Individuals are free to choose their occupation. Research and development to improve technology is done by private sector.
There is also another hybrid system. Most countries have a similar system of economic management to this.
Mixed system – In the mixed system the priority to industries are set mainly using the market system but are also protected and a social importance is given to certain sectors even though it might not be very profitable. Interest rates and wages are open to market forces but there are certain minimum levels of wages already set and maximum interest rates that are set too.
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