Notes And Study Material for Exam Papers

Wages are remuneration paid to labour in return for the services rendered. The term labour in Economics is used in under sense. It includes the work of skilled or unskilled professional or amateur, salaried or non-salaried persons etc who put the efforts mentally or bodily in return for some reward. The reward may be paid in cash or in kind or in both. The unit of time for the payment of remuneration may be a day, a week, a month or a year. Benham has defined the term ‘wages’ in a restricted sense. According to him ‘a wage may be defined as a sum of money paid under contract by an employer to a worker in exchange for services rendered. Theories of Wages 1.         Subsistence Theory This theory originated with Physiocrats and was commonly accepted during the 18 th century. The German economist Lassale called it the ‘Iron Law of Wages’. Karl Marx made it the basis of his theory of exploitation. According to this theory wages tend t...

Briefly Explanation of the Modern Theory of Profit Several theories have been put forward to explain the determination of profits. There is the risk theory of profit and also uncertainty-bearing theory. Some economists regard profit as the rent of ability. There are others who advocate the dynamic theory of profit. The question arises which theory shall we accept? How do profits arise? Here we are thinking of not gross profit but net profit. The fact is that in the real world, there are several causes that give rise to profit, but the principal cause is uncertainty. It is certain this is the basic cause of profit.  This uncertainty is due to the dynamic nature of the world. In this real world of ours, some or other change is always taking place. But only such changes are the cause of profit, as can not be foreseen as we have read in Knight’s theory. No entrepreneur can foresee all these changes nor are the circumstances under his control. The world is dynamic due to two sets o...

The Rent Theory of Profit is associated with the name of American Economist, Francis. A Walker . According to him profits are of the same gains as rent. The main points of Walker ’s Theory of Profit can be summed up as under. 1. Profit is rent in character. Just as superior grades of land earn more rent than the inferior grades of land, similarly superior entrepreneurs due to their exceptional ability or opportunity earn more profit than the inferior entrepreneurs. 2. As in the case of land there is no rent of marginal land, so in the business also is a non-profit or marginal entrepreneur. The marginal entrepreneur is one whose ultimate receipts from the sale of all commodities just cover his total cost. 3. Just as rent is measured from non-rent land in the same way profits of the superior businessman are calculated from the marginal entrepreneur. 4. The rent does not enter into price of agriculture production of manufactured goods. From all the main points stated a...

Clark's Dynamic Theory of Profit And Its Criticism The Dynamic Theory of Profit is associated with the name of an American Economist, J. B. Clark. In the world of reality, according to J. B. Clark, profit arises only in a dynamic economy. An economy is said to be dynamic when there is a change in population growth or change in the method of production or a change in the consumer’s wants, etc. A society which is without these changes is called a static society. In a static society, only monopoly profits continue to exist. All other economic profits are gradually eliminated by competition. In a dynamic society, an entrepreneur is always confronted with continuous unpredictable changes in demand for his product. The variation in demand may take place due to changes in fashions, tastes, the standard of living, distribution of income, population, new inventions, international repercussions, technological advances, etc. A prudent entrepreneur will always keep an eye on future demand...

Profit is the reward of the entrepreneur. It is the return on the fourth agent of production viz enterprise. Actually what people call profit is not wholly a reward for then entrepreneurial function i.e. they do not get the whole of it as entrepreneurs but they get a part of it in the capacity of land lord, a capitalist or a manager. What people ordinarily call profit is really gross profit. In order to find pure or net profit many deductions will have to be made out of it. Gross profit = Total receipts – Total costs Gross profit is distinguished from net profit is the reward which goes to the owner of the industry for entrepreneurial work. This reward includes the payment for risk-taking, management of business and the control of the industry due to the special business ability of the entrepreneur. Net or pure profit is only one of the element of gross profit. The chief constituents of gross profit are as follows. 1)         Reward fo...

Profit may be defined as the reward earned by the entrepreneur for his two fold services to production, namely management and risk-taking. The entrepreneur plans the business, hires the services of land, labour and capital and organizes then to his best ability. He pays rent, wages and capital at fixed rate. What remains after paying those is called Profit. The amount of profit is thus uncertain. According to Professor Knight, profit is the reward for uncertainty-bearing and not for risk, taking in a business. According to him there are two kinds of risks which entrepreneur has to bear? Some risks are of such a nature that they can be anticipated to a fair degree of accuracy e.g. the risk of death, accident etc and so can be insured in return for premium. The entrepreneur can include the payment made in the form of premium in the total cost of production. So such risk which can be calculated and inscribed should not entitle entrepreneur to a profit.  On the other hand, th...