Question

This Discussion Board is graded based upon your ability to relate Chapter #2: "Basic Economic Relations" to the topic under discussion: "10. Profits and interest: How do you get the best return?", the level to which you support your point with specific examples and your writing.http://www.learner.org/series/econusa/video/?pid=2462&uid=10&unit=Profits%20and%20Interest

Answer 1

There are inverse relationships between profits and interests. Both companies and investors weigh investment plans that fetches maximum investment returns for them. Investors such as people who invest in company stocks, first analyze the past market performance of stocks, risk factors and rate of returns or interests. It is to be noted that interest rates of investment plans are determined by the market forces and may not be same for each plan. Similarly, if company desires to collect finance through sale of equity stocks, then it must carefully estimate the interest or rate of return payable to investors. Rising interest costs of loan amounts accumulate cost of production of firms and reduce their profits as in competitive market, companies cannot set prices of their products and services higher than market price as it upset their overall sales volume and revenues. The Christian missionaries in that was aimed at fixing the ceiling of 12% interest rates on all types of loanable funds. The US house of representatives on February 21, 1979 passed the interest rate ceiling bill that was duly signed by then US president Jimy Carter. This bill was aimed at providing a ceiling of 12% interest on all types of loan schemes. Maryland State senator lawrence levitan says that the collapse of many housing projects in Maryland province was due to high usury or interest rates on home mortgage loans. Following the action of state legislators of Maryland, interest rate on mortgage loans was fixed at 10% in Maryland and mortgage companies such as banks, finance companies and others cannot charge buyers higher than 10% usury on mortgage loans. The success and failure of startups businesses mostly depend on careful selection of business plans that offer maximum rate of returns to new entrepreneurs. In 1976, two young entrepreneurs in US setup a company video game company and within 4 years, they earned huge profits from the business. They carefully selected a business that provided them highest rate of returns and made them successful in the business. Many experts viewed huge profits lead to monopoly and arbitrary prices in the market for example, Microsoft enjoys monopoly position in the global personal computer market and hence it unilaterally set prices of Windows computers such as desktops, laptops and Microsoft office products. Earlier the same position was enjoyed by Apple computer that was thrown out to second and third position by Microsoft and Google. Same is the case with pharmaceutical companies in USA. Pharmaceutical companies in USA charges high prices for life saving drugs and injections, tablets and syrups for critical diseases.. Another biggest issue of the pharmaceutical market in US is the sale of expiry and under quality medicines by pharmaceutical companies and they maximize their profits by selling their products at exorbitant prices. Though pharmaceutical companies in USA operate in a competitive market but they enjoys the power of a monopoly due to constant demand of pharma products in the domestic market.