Question

Mangerial Economics- Identify a current, economics-related issue (public policy) and explain its importance to business & how it could impact a business. Identify positives and negatives. Be specific. Cite examples. Document your analysis, listing at least three sources. Wikipedia is not an accepted source.(500-750 words)

Answer 1

Public policy refers to any government policy that is aimed at the welfare economics of a nation. The economic platform of a nation consists of many economic identities and it is the duty of the government o identify the problems faced by each of these sectors and generate policies so as to sustain the contribution of each sector to the economy of a nation. Social welfare is one of the most important tool of the government so as to bring the unfunded group of people in to the economy. Most of the public policies that are intended at social welfare brings deficit in the short term to the economy. But once these people are brought in to the economic platform of a nation, their contributions could be as asset to the economy. Now let us consider an issue in public policy, say microfinancing of industrial sector. Let us analyse the impact of it on the business of the nation

Microfinancing

                                    Microfinancing is defined as the financial services like provision of credit to the poor so as to improve their standard of living and include their contribution to the economic map of a nation. Now, with respect to the industrial sector of a nation, microfinancing has some major impacts. Microfinancing of industrial sector mainly distributes economic benefits to the small scale industries so that their generation capacities are improved and thus their potential benefit to the nation is attained. Let us analyse the public policy of microfinancing in a nation

Advantages of Microfinancing

· Microfinancing helps to improve the income of families and thereby helps in the development of income-generation activities.

· Most of the underutilised sections of the society are brought in to the economic map of the nation as their income earnings have improved

· As 70% of the world’s poor are women, microfinancing helps in the women empowerment process across the globe

· Increased microcredit helps in the establishment of various small-scale industries in a nation and thus helps in benefiting the economy in general.

· It would help to develop the basic standard of living of many people in the economy and thus leads to improvements in Human Development Index of a nation.

· As microfinancing offers a better loan repayment structure, it would be beneficial to many establishments that have just commenced in doing with the business.

Challenges faced by Microfinancing and companies offering them

· Over indebtedness: With growing trends of multiple borrowings and increased debt figures, the management has become riskier. Moreover, since no collateral is required for gaining microfinance, there are further chances of rise in bad debts in an economy.

· Inadequate investment validation: As the microfinance establishments are not consistent in their operations, it would be difficult for the providers to analyse the statistics and decide on future actions.

· Lower interest rates and rising inequality in distribution of credit: Although interest rates are lowered and repayment periods are relaxed so as to bring many overlooked sections of the society in to the economic map, it also results in unequal distribution of income and loss of opportunity cost

· Since microfinancing deals with only a low volume of money, it is difficult for the establishment of higher units in an economy.