Explain difference between income and profit

Some people intend for the terms income and profit to have the same meaning. For example, the income statement was commonly referred to as the profit and loss (P&L) statement. When a company is profitable, we mean that the company has a positive net income.

Income can be described as the total inflow of revenue during a period of time. It generally includes the wages, interests, rent and profits.

Profit can be defined as the surplus that is remained after the deduction of total costs from the total revenues.

Income and profit are very important terms for the economic activities and also find important status in the dictionary of business.

Income and profit seems to be connected to each other. However, some confusion may occur regarding the difference between the two as they both are related to each other in many senses. Thus, it is important to understand both these terms and then find the differences between the two.

List the factors that influence the level of profit.

Degree of competition

The degree of competition a firm faces is important. If a firm has monopoly power then it has little competition, therefore demand will be more inelastic. This enables the firm to increase profits by increasing the price. However, government regulation may prevent monopolies abusing their power.

Market competition

If the market is very competitive then profit will be low. This is because consumers would only buy from the cheapest firms.

Market contestability

Market contestability is how easy it is for new firms to enter the market. If entry is easy then other firms will always face threat of competition, even if it is just “hit and run competition”. This will reduce profits.

Strength of Demand

Demand will be high if the product is fashionable. E.g. mobile phone companies.

5. State of the Economy

If there is economic growth then there will be increased demand for most products especially luxury products.

6. Successful Advertising

A successful advertising campaign can increase demand and make the product inelastic.

7. Substitutes

If there are many substitutes or substitutes are expensive then demand for the product will be higher. Similarly complementary goods will be important for the profits of a company.

8. Degree of Costs

An increase in costs will decrease profits, this could include labour costs, raw material costs and cost of rent.

Explain the difference between microeconomics and macroeconomics. List the main indicators of macroeconomics.

Macroeconomics and microeconomics, and their wide array of underlying concepts, have been the subject of a great deal of writings. The field of study is vast; so here is a brief summary of what each covers. Microeconomics is generally the study of individuals and business decisions, while macroeconomics looks at higher up country and government decisions.

Microeconomics. Microeconomics is the study of decisions that people and businesses make regarding the allocation of resources and prices of goods and services. This means also taking into account taxes and regulations created by governments. Microeconomics focuses on supply and demand and other forces that determine the price levels seen in the economy. For example, microeconomics would look at how a specific company could maximize its production and capacity, so that it could lower prices and better compete in its industry. Microeconomics' rules flow from a set of compatible laws and theorems, rather than beginning with empirical study.

Macroeconomics. Macroeconomics, on the other hand, is the field of economics that studies the behavior of the economy as a whole, not just of specific companies, but entire industries and economies. It looks at economy-wide phenomena, such as Gross Domestic Product (GDP) and how it is affected by changes in unemployment, national income, rate of growth, and price levels. For example, macroeconomics would look at how an increase/decrease in net exports would affect a nation's capital account or how GDP would be affected by the unemployment rate.

List the main indicators of the national account system.

The System of National Accounts (SNA) is the internationally agreed standard set of recommendations on how to compile measures of economic activity. The SNA describes a coherent, consistent and integrated set of macroeconomic accounts in the context of a set of internationally agreed concepts, definitions, classifications and accounting rules.

Explain the difference between microeceonomics and macroeconomics. List the main problems of macroeconomics.

Microeconomics concerns itself with the small details that make a difference when evaluating individual companies. This includes production costs and market prices for goods and services. A lot of microeconomic information can be gleaned from the financial statements.

Macroeconomics focuses on aggregates and econometric correlations. Investors of mutual funds or interest rate-sensitive securities should keep an eye toward monetary and fiscal policy. Outside of a few meaningful and measurable impacts, macroeconomics doesn't offer much for specific investments.

Micro economics is concerned with:

· Supply and demand in individual markets

· Individual consumer behaviour. e.g. Consumerchoicetheory

· Individual labour markets – e.g. demand for labour, wage determination

· Externalities arising from production and consumption. e.g. Externalities

Macroeconomicsisconcernedwith

· Monetary / fiscal policy. e.g. what effect does interest rates have on the whole economy?

· Reasons for inflation and unemployment.

· Economicgrowth

· Internationaltradeandglobalisation

· Reasons for differences in living standards and economic growth between countries.

· Governmentborrowing