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Capital Theory Essay

capitalIt is hard to imagine any concept that would be more important for understanding economics than the concept of capital. It is only natural that the economic system comprising free enterprise and private property is often referred to as capitalism.

And it is surprising that such an important concept would be the subject of much controversy. Ever since the emergence of economics as a science in its own right different economists gave their own definitions of capital, included it into their theories, often giving almost diametrically opposite definitions of its role in the workings of economy.

The definition of capital, when reduced to bare minimum, would be ‘produced means of production’, that is, any form of wealth that can be employed to produce still more wealth. However, there is a distinction that is often overlooked by laymen – that of between financial capital and capital goods. Financial capital, e.g., of a business, is a sum of money that its owner will have if he or she sells all its assets and pays off all the liabilities. Capital goods, however, denote physical objects used in running the business, which cannot be expressed in numerical form. The confusion is further increased by the fact that economists often use the terms interchangeably.

Traditionally, economics differentiates between three different ways income is produced. These are rent, wages and interest. Rent is earned by landowner renting out land; wages are earned by workers selling their labor; interest is often defined as marginal product of capital.

However, it wouldn’t be an exaggeration to say that these definitions are somewhat out of date, for they don’t fit very well into the modern economic theories, most importantly, the price theory, according to which the boundaries of these categories are much more vague than it was previously considered.

For example, rent generated by property can easily be reduced to interest generated by investment – for property owner implicitly invests the property’s value by keeping the property instead of selling it, and gets a return on investment in the form of rent.

The very definition of interest as marginal product of capital doesn’t seem too accurate as well, for it mixes up financial capital with physical capital goods. And doing so it omits several important factors. For example, we may calculate the changes in incomes of a firm that rents additional physical goods; but in order to find out the interest rate of this acquisition we have to know the market price of these capital goods. Depending on the price, the interest rate may vary; moreover, it may fluctuate over time, which brings additional difficulties. Thus, the correlation between the productivity of capital and interest rate is not completely identical to that between productivity of labor and wage rate.

All in all, despite its importance for the understanding of economic theory, the concept of capital so far received woefully inadequate amount of attention from scholars. Current economic theories tend to apply simplifications that, while making analysis easier, do not take into account inhomogeneous character of capital.

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Selecting the Right Risk Management Tool

business coachingRisk management is a highly complicated field of study, of necessity dealing with numerous factors, probabilities and variables. As a result, defining even an individual risk may be a very difficult task, further complicated by the fact that risks may be measured in a wide variety of ‘units’ (such as monetary costs, time, reputation, etc.) and that it is hardly possible to define in what ways different risks influence the probability of each other and how their overall possibility should be calculated.

Risk management tools exist for the sole purpose of alleviating the task of planners by creating some system, illustrated by metrics, parameters, priorities and suchlike that allows them to make some sense of this vastly contradictory, fluctuating and ambiguous set of factors.

When selecting the right tool for a particular organization it is important to study the company’s risk analysis and management process, define what is important for it, what its goals are, and then ask oneself some questions concerning how well this or that tool correlates with the declared task. Does the company intend to carry out a separate risk analysis or to organize an ongoing risk management process? Can the tool in question provide all the information necessary for the company? Does it provide the necessary level of detail? Can it be aligned with other project management tools?

While there is hardly such a thing as a tool that would be universally ideal for any company, there are still requirements that any serious tool should meet. First of all, it should support the four basic stages of risk management.

Firstly, risk identification – meaning that it should help define probable risks and the way they relate to each other.

Secondly, the assessment of risk impact – meaning that it should provide estimates of probability of particular events happening and the severity of their impact.

Thirdly, risk prioritization – meaning the tool should help define which risks are more crucial and which are less, and grade them according to the degree of severity.

Fourthly, planning of risk mitigation and ongoing monitoring – meaning that the more severe risks should be analyzed for the ways of their mitigation, less severe ones – tracked lest they grow in importance.

A full-fledged risk management tool should incorporate all these stages to be truly effective. However, when choosing a tool, an organization should keep in mind that it has to be in accordance with the organization’s nature, size and degree of complexity. For a small company it may be enough to run a risk analysis from time to time. For a large multinational corporation dealing with innumerable variables influencing its activities, risk assessment, analysis and management should turn into an ongoing process integrated into the workings of the organization, for in this case we deal with a much more complex entity in which things can go wrong in innumerable different ways.

One, however, should remember that risk management matters irrespectively of the organization’s size. With the world steadily growing more complicated and volatile, no business is simple enough to ignore analyzing its possible weaknesses.

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Essay on Economic Benefits of Outsourcing

human resource outsourcingThe idea of contracting some business processes of a company to a third party isn’t a new one, but the technology allowing to make this practice viable and widespread wasn’t around until quite recently. About a decade or two ago outsourcing was one of the most important and widely used buzzword in business – and albeit today it isn’t as hot a topic as then, it still remains an incredibly important factor in global economy.

Although the changing economic situation has recently forced a number of businesses to drift back to perform most tasks within the parent company, there are still a number of notable benefits to outsourcing no one can deny.

1. Cost Effectiveness

The most self-evident reason to outsource is to save money. And the most self-evident way to do so is to contract some activity out to a country with lower average wages than where you live. The latter was especially popular for the last several decades, to the point that some nations such as India have become favorite outsourcing destinations for the entire Western world. Lower wages doesn’t necessarily mean lower quality – there are thousands of well-educated specialists in Asia and South America who would be eager to work for half as much as such a job would cost in the USA.

2. Time Zone Benefits

If you live in America it may be a good idea to outsource some activities to the Old World, and vice versa. The reason? Difference in time zones means that your outsourcers will toil while you sleep without asking extra for working odd hours and you will be presented with the results of their work first thing in the morning. It is a viable idea for hiring customer support this way as well, at least if you don’t mind their not always very good English.

3. Infrastructure and Technology Savings

One may contract some activity out to another company or business that specializes in rendering particular services and is well-equipped for this, thus freeing oneself from the necessity of purchasing specialized equipment.

4. Personnel Recruiting and Training Savings

Outsourcing allows you to maximize the benefits of one of the core principles of economy – specialization. It gives you an opportunity to avoid hiring experts or training your current employees to perform activities that are secondary to your business by hiring another company that is already well-equipped for dealing with this assignment.

5. Concentration on Core Activities

Outsourcing allows you not only to avoid extra costs, but to keep your business smaller and more manageable without sacrificing its overall output. You keep only those employees that perform functions that belong to the core activities of your company without having to support many additional departments.

Of course, outsourcing is not a magical cure-all for all economic problems of a business. Nor is it without drawbacks – but still, there are many situations in which cleverly organized outsourcing may mean the difference between a business that is manageable, profitable and developing and a business that is overcomplicated, middling and stagnant.

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Writing an Economic Case Study: Hidden Reefs

calculatorThe use of case studies is an extremely important tool in modern education, and especially so in economics, due to the reactive nature of the discipline. However, in order for a case study to be effective, it has to be carefully written and checked for inconsistencies – it won’t do if due to some oversight on the part of the author students will concentrate their attention on an insignificant detail that has no pertinence to the problem in question. Let’s take a look at usual mistakes done when writing an economic case study.

1. Mixing up Different Approaches

There are two basic approaches to case study structuring: the problem-oriented and the analytical one. In problem-oriented case studies students are supposed to take a look at the situation, identify the most important problems and suggest solutions to them (or, alternatively, the problems are already presented). In analytical ones, students are presented with a situation and told what has happened, and their task is to analyze it and understand what exactly has happened and why, without any references to problems and/or solutions. Quite often case study authors don’t draw a clearly defined line between these two approaches, which results in confusion and decreased performance.

2. Insufficient Research

Writing a case study is a much more complicated task than one may think after simply reading them. It requires a great deal of research, solid knowledge of theory and, what is probably the most daunting, interviewing real people. It is important – you don’t simply invent a situation illustrating some aspect of a theory. You have to carefully investigate a situation, read as much on it as possible, define which people who have something to do with a situation you need to interview, prepare lists of questions and organize the whole thing. It may sound intimidating, but it is the only way to write a real case study.

3. Founding a Case Study on a Shaky Premise

Make sure there is material for a case study in the situation you are looking at: either an interesting problem or a situation illustrating an important point. Don’t twist it so that it fits your premise, better find another situation, worthy of a study.

4. Recycling Old Studies

Studying older case studies is alright if you try to learn how to do it or investigate a similar situation; writing a new case study based on the old information from a case study done by somebody else is… not such a good idea.

5. Information Presented Inconsistently

One of the most common mistakes of case study writers is inconsistent and mixed-up order of presenting information. It is best not to invent anything fancy and simply do it chronologically. If there are some statistics and graphs illustrating the described situation, they should come last.

These are the most basic mistakes there are; if you avoid them you will already drastically increase your chances of writing a high-quality case study. However, only continuous practice and study of mistakes made by other people can bring your real mastery of the subject.

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How to Write a Great Economics Essay

Are you looking for tips on how to write great economics essays? Where else can economic students find inclusive information on writing essays than on this page?

The most important asset that an economics student has in the writing of economic essays is preparedness that masterly of economics offers. This implies that if you are a student taking economics, it is about time that understanding of the underlying principles of economics came in handy in writing a great economics essay. Taking course work seriously on every day schedule can never be overemphasized. This is the backbone of all economics assignments, be they essays, assessment tests or final exams. Any unit covered in economics from the lowest grade will be useful in the entire course.

Having seen the importance of keeping in touch with all course units, tips on how to write great economics essays will highlight other pertinent issues to observe, namely;

  • Topic: the economics essay topic chosen should always be in an area that the writer is conversant with. This underpins the importance of taking the entire course seriously since random topics may be given by the instructors. The writer must understand all aspects of the topic chosen or given by spending enough time on topic.
  • Organization: the essay must be systematically organized by drafting key points on a rough paper. These points are then built into complete paragraphs, with some illustration to stress each paragraph idea. Each of the paragraphs should support the topic idea with a different perspective taken in each idea. Language used should be as formal as possible, with grammatical and punctuation problems avoided completely.
  • Presentation: the guidelines given by the instructors concerning economics essay must be followed. The writer must always maintain neatness and order in the final draft, since lack of order attracts negative results and judgments on an essay.

This information could be just what you needed in learning how to write a great economics essay.

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