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Global Economics - Essay Example

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This essay focuses on two major concepts of the Global Economics - Inflation and Economies of Scale. Inflation is the rise in the general price levels of commodities in an economy when Economies of scale refer to cost benefits realized through long run expansion of the scale of production…
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Global Economics
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Download file to see previous pages This paper talks about two big concepts of the global economics which are Inflation and Economy of Scales. There are various reasons which may lead to increase in costs.
The first reason includes the rising costs of imported raw materials possibly caused by inflation in nations that heavily rely on exports of these products. Also, a fall in value of a country’s currency in the foreign exchange markets increases the price of imported inputs of that country. The second is the rising costs of labor; this is caused by an increase in wages which exceed and enhancement in productivity. Labor intensive firms are largely affected by this cause. Firms may not be able to absorb higher wage expenditures; thus, they pass the costs to customers. As a result, the wage inflation increases the price inflation.
Thirdly, the imposition of higher indirect taxes by the government. An example is the increase in the excise duty rate, VAT, standard rate or fuel duties. These taxes are charged on manufacturers who, depending on the supply for their commodities and price elasticity of demand, may decide to pass on the tax burden onto consumers.
In marketing economies of scale, a bigger firm may spread its marketing and advertising budget over a great output. It may also buy its raw materials in bulk at discounted prices. In financial economies of scale, financial markets frequently consider bigger firms to be more creditworthy than smaller firms. This enables these firms to access credit facilities at favorable rates.

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