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Globalisation and its Impact

Perhaps you have come across the term Globalisation earlier but did not pay much attention to it. What if I tell you that without globalisation, the economy of today would be looking very different. You and I would not have access to so many of the products we use in our day to day lives that are integral to us. Reason being, the integration of economies of different countries of the world through the opening up of trade, capital flow and technology which in other words is known as 'globalisation'.

So what does globalisation actually involve? The most important feature or reform of globalisation is the liberalisation of imports or the opening up of trade. Trade barriers refer to restrictions on international trade which are imposed by the government of a country. Earlier, India and Russia had imposed a large number of trade barriers such as import licensing, duties and quantitative restrictions on imports which were removed in view of promoting prosperity and freedom in the economy.

Secondly, part of globalisation is countries opening up their doors to foreign direct investment. FDI refers to the investment made by an investor located in a foreign country. FDI is beneficial to both the countries. Especially the receiving country as it it used to finance construction of industries and infrastructure.

Overall, globalisation has a had significant advantages on economic, technological and other fronts. For example, in the case of developing countries, access to advanced technology that has been transferred from developed countries has increased. Moreover, it has brought people of different cultures together which can be seen in countries with a large number of immigrants such as the United States of America.

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Uses of Financial Economics

Financial Economics is related to that part of the subject that studies the utilisation and dispersion of resources in the economy. For example, it studies the flow of cash in and out of the economy.

Since financial economics covers organised financial markets, it studies financial instruments like bonds, stocks and securities. Therefore, one of the major and most important uses of it is to study the risks involved in investment. Investors, obviously seek high yields which involves higher investment. However, such investment involves high risks and the wrong step can lead to loss. This is where the role of financial economics helps investors evaluate the fitting degree of chance for their objectives.

Financial economics extends to much beyond aiding independent investors. Businesses utilise this subject to make essential decisions like capital planning which refers to procuring assets for expansion or investment. Based on the data acquired businesses make decisions relating to mergers and acquisitions with and of other firms.

In addition, bodies of financial regulation use financial economics to understand the market situation and formulate suitable rules and regulations to govern the market according to its requirements.

There are several more uses that push financial economics to be one of the most important branches of the subject, however these are a just a few important ones.

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The Effect of Income Changes on Consumer Choices

Have you ever realized that consumer choices change significantly which a rise or fall in income? This phenomena is known as the income effect.

The income effect is simply the change that is caused in the demand of a good or service due to a change in the individuals income level.

Typically, one reduces his consumption of an item or tries to switch to a cheaper alternative when his income falls. On the other hand, when his income rises, he typically increases consumption of an item. The reason behind this is because a change in money income of a consumer results in a change in their real income. Real income refers to the income of a consumer in terms of goods and services.

The typical effect of change in income on demand is observed in the cases of goods like food, clothing, etc. These goods are known as normal goods, where demand of consumers increases with an increase in income. Meanwhile, inferior goods are those whose demand decreases with an increase in income. This happens because they are poor quality items and consumers are now able to afford the more expensive, better quality goods with an increase in their income. For example, second hand clothing, poor quality white bread, etc.

In conclusion, , as one's income rises, they will begin to demand more goods. Similarly, A decrease in income results in lower demand. However, it is vice-versa in the case of inferior goods.