In principle, there is always an infinite number of possibleinvestment projects. Some of them increase the value of resources, and with themwelfare of the community, others - on the contrary, reduce it and lead the country toeconomic decline. Obviously, the first and should be encouraged to fightwith the latter.This is the way to the market system is a mechanism of profits and losses. Firmsbuy and spend their resources on the production of goods and servicesthen sell to consumers. If the proceeds from the sale exceeds the costfirm makes a profit. Profit is the reward received by the ownerfirm if it produces a product that is evaluatedcustomers above the cost of resources required for its production. AtThe estimate of consumer goods is measured by their willingness to pay for itmoney, and resource costs - the value required to "repurchase" them inalternative use.In contrast, the losses are a punishment for those firms thatreduce the value of their work resources. used by these would-be entrepreneurs is higher than acceptableConsumer prices for their goods. Losses and bankruptcy - ismarket-based way to put an end to such waste.Suppose, for example, a manufacturer of shirts, spends 20 thousand dollars per monththe rental premises and necessary equipment, to attract labor,purchase of fabrics, buttons and other materials needed for production andsale of 1,000 shirts. If a manufacturer sells 1000 shirts for the price$ 22 per unit, its activities are profitable. Consumers appreciate thethese shirts more than the resources required for their production. Profitmanufacturer in the amount of $ 2 per shirt - a reward,received by them for the increase in the value of resources.If you can not sell the shirts at a price of $ 17 more expensive, the manufacturerbears on each of them a loss of $ 3 They arise from the factthat reduce the value of the manufacturer's resources - to have a shirtconsumers less value than the resources spent on theirproizvodstvo.My live in a world of changing tastes and technologies, imperfect knowledge anduncertainty. Decision makers in business, can not beunsure of any future market prices, either in production costs. Theirsolutions must be based on assumptions. Nevertheless, it is obviousthat a market economy based on the principle of rewards and penalties. Firmsguess correctly and efficiently produce those products and services forthat people are willing to pay a price that exceeds the cost of production,profit, the company is operating inefficiently and incorrectlydirecting resources to those areas where demand is low, arepunishment in the form of damages.The country stands to benefit if its resources are used in the production ofthose goods and services whose price is relatively high in comparison with thecosts of production. Gains on the one hand and losses on the otherdirect investments in business projects that promoteeconomic growth, and protect from wasting scarce resources. This is -vital feature of the market. Countries that can not be effectively itsuse, are almost guaranteed to end up in economic stagnation.
Sunday, August 12, 2012
Profit encourages businesses to work for social welfare
The cost of resourcesIn principle, there is always an infinite number of possibleinvestment projects. Some of them increase the value of resources, and with themwelfare of the community, others - on the contrary, reduce it and lead the country toeconomic decline. Obviously, the first and should be encouraged to fightwith the latter.This is the way to the market system is a mechanism of profits and losses. Firmsbuy and spend their resources on the production of goods and servicesthen sell to consumers. If the proceeds from the sale exceeds the costfirm makes a profit. Profit is the reward received by the ownerfirm if it produces a product that is evaluatedcustomers above the cost of resources required for its production. AtThe estimate of consumer goods is measured by their willingness to pay for itmoney, and resource costs - the value required to "repurchase" them inalternative use.In contrast, the losses are a punishment for those firms thatreduce the value of their work resources. used by these would-be entrepreneurs is higher than acceptableConsumer prices for their goods. Losses and bankruptcy - ismarket-based way to put an end to such waste.Suppose, for example, a manufacturer of shirts, spends 20 thousand dollars per monththe rental premises and necessary equipment, to attract labor,purchase of fabrics, buttons and other materials needed for production andsale of 1,000 shirts. If a manufacturer sells 1000 shirts for the price$ 22 per unit, its activities are profitable. Consumers appreciate thethese shirts more than the resources required for their production. Profitmanufacturer in the amount of $ 2 per shirt - a reward,received by them for the increase in the value of resources.If you can not sell the shirts at a price of $ 17 more expensive, the manufacturerbears on each of them a loss of $ 3 They arise from the factthat reduce the value of the manufacturer's resources - to have a shirtconsumers less value than the resources spent on theirproizvodstvo.My live in a world of changing tastes and technologies, imperfect knowledge anduncertainty. Decision makers in business, can not beunsure of any future market prices, either in production costs. Theirsolutions must be based on assumptions. Nevertheless, it is obviousthat a market economy based on the principle of rewards and penalties. Firmsguess correctly and efficiently produce those products and services forthat people are willing to pay a price that exceeds the cost of production,profit, the company is operating inefficiently and incorrectlydirecting resources to those areas where demand is low, arepunishment in the form of damages.The country stands to benefit if its resources are used in the production ofthose goods and services whose price is relatively high in comparison with thecosts of production. Gains on the one hand and losses on the otherdirect investments in business projects that promoteeconomic growth, and protect from wasting scarce resources. This is -vital feature of the market. Countries that can not be effectively itsuse, are almost guaranteed to end up in economic stagnation.
In principle, there is always an infinite number of possibleinvestment projects. Some of them increase the value of resources, and with themwelfare of the community, others - on the contrary, reduce it and lead the country toeconomic decline. Obviously, the first and should be encouraged to fightwith the latter.This is the way to the market system is a mechanism of profits and losses. Firmsbuy and spend their resources on the production of goods and servicesthen sell to consumers. If the proceeds from the sale exceeds the costfirm makes a profit. Profit is the reward received by the ownerfirm if it produces a product that is evaluatedcustomers above the cost of resources required for its production. AtThe estimate of consumer goods is measured by their willingness to pay for itmoney, and resource costs - the value required to "repurchase" them inalternative use.In contrast, the losses are a punishment for those firms thatreduce the value of their work resources. used by these would-be entrepreneurs is higher than acceptableConsumer prices for their goods. Losses and bankruptcy - ismarket-based way to put an end to such waste.Suppose, for example, a manufacturer of shirts, spends 20 thousand dollars per monththe rental premises and necessary equipment, to attract labor,purchase of fabrics, buttons and other materials needed for production andsale of 1,000 shirts. If a manufacturer sells 1000 shirts for the price$ 22 per unit, its activities are profitable. Consumers appreciate thethese shirts more than the resources required for their production. Profitmanufacturer in the amount of $ 2 per shirt - a reward,received by them for the increase in the value of resources.If you can not sell the shirts at a price of $ 17 more expensive, the manufacturerbears on each of them a loss of $ 3 They arise from the factthat reduce the value of the manufacturer's resources - to have a shirtconsumers less value than the resources spent on theirproizvodstvo.My live in a world of changing tastes and technologies, imperfect knowledge anduncertainty. Decision makers in business, can not beunsure of any future market prices, either in production costs. Theirsolutions must be based on assumptions. Nevertheless, it is obviousthat a market economy based on the principle of rewards and penalties. Firmsguess correctly and efficiently produce those products and services forthat people are willing to pay a price that exceeds the cost of production,profit, the company is operating inefficiently and incorrectlydirecting resources to those areas where demand is low, arepunishment in the form of damages.The country stands to benefit if its resources are used in the production ofthose goods and services whose price is relatively high in comparison with thecosts of production. Gains on the one hand and losses on the otherdirect investments in business projects that promoteeconomic growth, and protect from wasting scarce resources. This is -vital feature of the market. Countries that can not be effectively itsuse, are almost guaranteed to end up in economic stagnation.
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