Aj's Mathenomics Institute

Red Sigma Classes wishes all a happy republic day.

fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy.[1] The two main instruments of fiscal policy are government taxation and expenditure. Changes in the level and composition of taxation and government spending can impact the following variables in the economy.

The Concept of Exchange Rate says that...
The 'price' of one currency is always expressed in terms of another currency, as there is no independent unit we can use to express the value of currencies.
E.g. - In market for cars or shoes or any good or service , 'price' is measured in terms of units of money.
In case of currencies, there is no independent unit to measure value. Therefore, the value is, measured in terms of another currency.
There are two types of Exchange Rate systems -
1. Freely floating exchange rate system
2. Managed exchange rate system

Perfect Competition: Sometimes it's called Price Competition, sometimes Pure Competition, but it has the same result: efficiency and zero economic profits in the long-run.

Firms don't start out with the objective of being efficient and they don't really intend to make the consumer the "boss". It just turns out that way. What firms really try to do, of course, is to maximize their own profits.

To produce goods, sell those goods, and maximize profits, firms must make three decisions.

It must make a long-run decision: Commit to what industry to be in, what product(s) to make, and what technology or size of plant to use. This is the long-term strategic decision. It will commit the firm to certain kinds of spending and costs. Once the firm makes this decision, it is contractually committed to paying certain costs. Most firms make this decision at the beginning and only rarely do they ever re-consider the decision.

The short-run production decision: Given the long-run decision in number 1, the firm is limited in it's range of choices. Basically, it can choose how much to produce. In the context of economic models, this is described as choosing what Q (quantity) of output to produce. Given that it has already committed to a certain technology (long-run decision), the choice of how much to produce dictates how much short-term, or variable costs, must be incurred.

Finally, the firm decides what price to charge. Of course, the firm is limited by what consumers are willing to pay and what price competitors charge.

The last step isn't really a decision, it's a calculation of how much profit was made.

Positive Externlities