Posts Tagged ‘forex’

Firm and Industry in Imperfect Competition

Sunday, April 11th, 2010


Only one firm of efficient size or only one firm may possess the technical skill or the capital equipment required to make use of some good or service. Those people who have such goods or services to sell can therefore sell to this firm only; no one else can use them. For example, the Canadian Broadcasting Corporation is virtually a monopsonist in regard to the services of many types of professional entertainers in Canada.

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Significance of the Price-Marginal Cost Ratio

Sunday, March 28th, 2010


The temptation to shade the price in order to make an extra sale will be particularly strong where fixed costs form a very large proportion of total costs, and marginal costs are very small. If the selling price is set on the basis of average total cost, then it will greatly exceed marginal cost.

It may happen of course that all the increase in sales gained by a price cutting firm is at the expense of just one or two other firms near by. In that case they may find it necessary to match price cuts. Another group of firms may be affected in turn by their price cuts. For example, one filling station located on a particular street may reduce the price of its gasoline. Nearby stations are obliged to match the reduction. But when they cut their price, other stations near them, but far from the original price cutter, are obliged to match  the reduction. A further group becomes affected, until by such a series of chain reactions, all filling stations in the area wind up selling at the low price.

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Mutual Fund Dividends

Wednesday, March 10th, 2010


A mutual fund is a trust or corporation that manages a pool of capital for its unit holders. Most mutual funds are organized as trusts. The fund sells shares to raise the capital that it then invests in a portfolio of securities, according to the investment advisor and the objectives of the fund.

A mutual fund dividend is a distribution to shareholders of income and realized capital gains earned during the year by the investments in the fund’s portfolio. A mutual fund trust pays a distribution while a mutual fund corporation pays a dividend. For simplicity, in this article, we will use the term “dividend”. Mutual fund investments earn income in the form of interest and dividends. Realized capital gains represent the profit made when an investment within the mutual fund is sold at a greater price than its average cost.

A dividend is paid to pass through to unit holders the income and realized capital gains earned in the fund. The unit holders are issued tax slips to report this income.

The price of mutual fund rises with the accumulation of income and realized capital gains. When the distribution or dividend is paid, the net asset value of the fund drops by the value of the distribution. Most unit holders elect to reinvest the dividend which means buying additional shares at the lower (ex-dividend price). The net effect to these unit holders is that their fund will have the same total value the day after the dividend as the day before but they will have more shares.

How is it that the value of my account can drop to a lower level over the course or a year but I will still have to pay tax on my dividends?

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The Government Can Print the Money

Sunday, March 7th, 2010


Another way to raise the funds for federal budget deficits is to create new money (the popular term is print money) for the government to spend. While a growing economy requires a larger volume of money in circulation (called the “money supply” by economists), it is dangerous to increase the money supply too quickly. The inevitable result of such a policy would be severe inflation, as the excessive amount of money in circulation forces prices up rapidly. Thus, while it may be tempting for the government to simply “print money” to finance its budget deficits, this should be done only within limits, so as to avoid increasing the money supply by more than the economy can absorb without rapid inflation.

*The government does not actually physically print new money for itself to spend. The process is more subtle than that, and will be examined in detail. However, the economic effects of such a policy are such that it can reasonably be described as “printing money.”

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The Government Can Borrow the Money

Thursday, March 4th, 2010


The government can raise the necessary funds by borrowing them – by selling government bonds to the public, banks, insurance companies, pension funds, investment funds and other financial institutions. By doing this, the government can, in effect, “mop up” savings that are not being used for capital investment and inject them back into the spending stream as government spending.

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Financing Deficits: Where will the Money come from?

Sunday, February 21st, 2010


The use of fiscal policy to stimulate the economy during recessions requires that the government have budget deficits, with government expenditures larger than tax revenues. Where will the necessary money come from to finance such deficits? There are two possible sources of funds to finance budget deficits.

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