Economics

Advantages of Inflation

len Alfred Ajibola - 22nd October, 2020 @ 04:18 AM

Topics in Economics

Advantages of Inflation Disadvantages of Inflation Concept of Inflation in Economics Scheme of work for Economics, SS1, First Term Scheme of work for Economics, SS1, Second Term Scheme of Work for Economics, SS1, Third Term Functions of the Wholesaler Advantages and Disadvantages of the Wholesaler Wholesale Market: Who is a Wholesaler? Characteristics of the Wholesaler Retail Market: Who is a Retailer and Examples of Retailers Market: Types of Market Market - What is a Market in Economics? Elasticity of Supply: Types of Supply Elasticity Supply Elasticity: Elasticity of Supply explained Demand Schedule - Types of Demand Schedule Demand: What is Demand? Law of Demand Concept and Types of Cost Supply, Supply Curve and Law of Supply What is a Black Market, Its advantages and disadvantages


Academic Questions in Economics

Please check out our Test Your Knowledge page to see all Questions and Answers

A _____ market provides a platform whereby job seekers link up with employers in an attempt to be hired.

  • A. Wholesale market

  • B. Bond market

  • C. Physical market

  • D. Virtual market

  • E. Factor Market

  • F. Labor Market

Which of the following is not a type of market based on commodities bought and sold?

  • A. Wholesale market

  • B. Bond market

  • C. Physical market

  • D. Virtual market

  • E. Factor Market

  • F. Labor Market

According to economists, a market refers to a/an _____ comprising of various buyers and sellers carrying out business transactions.

  • A. Place

  • B. Location

  • C. Entire area

  • D. Online platform

  • E. Avenue

  • F. Axis

Primary market is a type of market based on _____.

  • A. Market structure

  • B. Demand

  • C. Supply

  • D. Commodities bought and sold

  • E. Channel of distribution

  • F. Internet and world wide web

Pice elasticity of supply - Len Academy

The above diagram on the quantity supplied against a change in price is _____.

  • A. Elastic

  • B. Inelastic

  • C. Perfectly Elastic

  • D. Perfectly Inelastic

  • E. Zero Elastic

  • F. Unitary Elastic

The rate at which an increase in the price of a product translate into the product's increased production and availability in the market is termed _____.

  • A. Demand

  • B. Supply

  • C. Demand Elasticity

  • D. Supply Elasticity

  • E. Demand Curve

  • F. Supply Curve

Concerning demand curve, which of the following statement is incorrect?

  • A. It is a graphical represention of a table showing the price of commodities and quantity demanded

  • B. It can be an individual demand curve

  • C. The x-axis shows the price of commodities

  • D. The price and quantity demanded are expressed on different axis of the graph

  • E. It can be a market demand curve

  • F. All the options are correct

A table that shows the price of a commodity and the quantity demanded is termed _____.

  • A. Price table

  • B. Demand table

  • C. Demanded-price table

  • D. Demand preference table

  • E. Demand graph

  • F. Demand schedule

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Advantages of Inflation:

Inflation is not always a bad event. Infact, deflation (an opposite to inflation) can prove very harmful to a nation's economy.

Please read more on the concept of inflation here.

Although inflation is said to occur when there is a general increase in the price of goods and services, the pace at which this increase occur is what's of interest here.

If the price level increases slowly or moderately, then the effects of inflation can be advantageous, otherwise it becomes devastating if price increases in a rapid, sudden and unpredictable pattern.

Please read on the disadvantages of inflation here.

Below are some of the advantages of inflation in an economy:

 

  • Inflation is better off in comparison to deflation

Deflation is bad for an economy. It will surely lead to recession, depression and a lack of investment into such economy.

Conversely, inflation in required for the growth of an economy. Although not all economist are in support of a high inflation rate, a moderate and gradual inflation rate will eventually result into a standard living for both the citizens and residents alike.

You can read on the rights of citizens and attributes of residents here.

In 2013/2014, an instance of little economic growth occured in the Euro-zone countries as a result of a very low inflation rate; and this eventually led to an increased rate of unemployment.

Note: Had it been the Euro-zone aimed at a higher inflation rate, their economies wouldn't have suffered such increased unemployment rate.

 

  • Inflation brings about a corresponding change in the wages and salaries of workers

A moderate rate of inflation can have a positive effect on the wages and salaries of workers who are deserving. Interestingly, one of the reasons why salaries and wages are increased is due to an increase in the standard of living; and that's influenced by inflation.

As an instance, a person who had worked for over 10 years in an organization will likely not continue to earn the same amount as salary (even when he or she isn't promoted). This is true because the standard of living between the present time and '10 years ago' must have changed.

You can read on conflict management and ways to reduce conflict in any organization here.

Again, this change will be in the upwards direction if inflation had occur in the economy. For this reason, productive and dedicated workers will earn a pay rise while the unproductive ones may have their wages frozen with new workers occupying their position.

Note: The above process makes an organization attractive, thus indirectly creating more employment opportunities.

You can read on the advantages of division of labour here.

 

  • Inflation results into price adjustment

This is particularly important for countries that utilizes the same currency, for instance, the Euros which happens to be a currency used in the 'Euro-zone' countries.

At one point in time, the southern Euro-zone countries (Spain and Italy) had an uncompetitive economy which lead to account deficits for the citizens and residents alike. To worsen the situation, both countries utilize the Euros (a general currency for the Euro-zone countries) which can't be single-handedly devaluated.

In summary both countries had to cut the relative prices of goods and services in an attempt to regain competitiveness.

You can read on the advantages and disadvantages of cheques here.

Note: The process of cutting down relative prices implied that wages and salaries are reduced as a result of deflation. Had it been the Euro-zone had a low to moderate Inflation rate, it would have been much easier for Spain and Italy (from the above instance) to regain economic competitiveness without undergoing the dangerous processes of deflation.

You can read on supply curve and law of supply here.

 

  • Inflation reduces the value of debt

Generally, when people take up debts; for instance, a mortgage, they usually envisage that an impending inflation rate will aid them cancel out the value of such debt overtime.

In a scenerio where inflation fails to occur (rather deflation took its place), such events can become catastrophic for those who had taken up the debt as some may even contemplate suicide as a result.

Please read on the concept and types of cost here.

Note: An instance of the above explanation occured in United Kingdom in 1920s and 'Euro-zones' in 2010s and these led to serious problems in the affected economies.

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Alfred Ajibola is a Medical Biochemist, a passionate Academician with over 7 years of experience, a Versatile Writer, a Web Developer, a Cisco Certified Network Associate and a Cisco CyberOps Associate.


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Amazing facts in Economics


NOTABLE POINTS IN Economics

Below are definitions of demand from the perspective of some notable professors:

The demand for goods is a schedule of the amounts that buyers would be willing to purchase at all possible prices at any one instant of a time.

Professor Mayers

Demand is the various quantities of goods that would be purchased per time period at different prices in a given market.

Professor Hibdon

The demand for anything, at a given price is the amount of it which will be bought per unit of time at the price.

Professor Benham

Generally, demand is defined as the willingness of a person, buyer or consumer to buy a specific quantity of goods or service at a given price and time.

From the above definitions, we can infer that the definition of demand is referenced to three major factors. These are:

  1. Quantity of Goods Demanded

  2. Price

  3. Time

Please read more on the concept of demand here.

In economics, we have various types of cost. These are:

  • Accounting cost

  • Economic cost

  • Outlay cost

  • Opportinity cost

  • Fixed cost

  • Variable cost

  • Direct cost

  • Indirect cost

  • Sunk cost

  • Incremental cost

  • Private cost

  • Social cost

Please read the explanations on the aforementioned types of cost here

A Black market is said to take place when there is illegal buying and selling of goods and services.

Black markets usually take place outside the government's rader and without government's knowledge so as to avoid tax or any other government regulations.

Black market presents the avenue for government prohibited goods like hard drugs, war weapons and firearms to be bought by criminals.

A black market can also occur on the web for cyber criminals or those who are involved in computer hacking. To achieve their malicious aim, these individuals will go into the dark web and purchase or rent their respective hacking tools for a fee. Normally, payments are made in crypto currencies.

However, a black market isn't generally considered as bad. Infact, it has its advantages and disadvantages.

Please read more on black market here

Below are some advantages of black market:

  • Goods and services are sold at a cheaper price.

  • It helps some people make plenty of money.

  • The illegal sales of human organs, for example, the sale of human kidneys have aided in saving some lives.

  • Some people actually depend on black market for their daily bread.

  • Some of the proceeds from black market may be utilized towards the economic growth of a nation. For instance, schools and hospitals had been built with money made from black market.

The law of supply states that:

The quantity of the supplied services or goods will increase as the price increases and they will decrease as the price decreases provided all other factors remain constant.

These constant factors are very important when stating the supply law. They include:

  • The price of input resources

  • The kind of technology used during production

  • The number of suppliers

  • The number of buyers; and so on.

 

A graph that shows the relationship between the price of a product or service, and its quantity supplied is the supply curve.

Supply curve can be defined as a graphical representation of the direct relationship between the prices of goods and services and the quantity supplied (of such goods and services) within a particular period of time provided all other factors remain constant.

Len Academy - Supply CurvePlease read more on the law of supply and supply curve here