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Important Curves in Economics. ???
Every subject has its own language of speaking and explaining. Therefore, Economics stands Full of Curve.
The word supply and demand explains the balance of payment. These two words supply and demand are basic roots of economics.
There are more reliable words related to economics and it’s curved. They are production possibility curve and production possibility frontier e.t.c.
The country’s development is narrated by its production, distribution, and the Indicator it gives. So let’s learn about some of the important curves in economics.
What is a curve in Economics?
The curve is usually a simpler way to understand data in the image, no. and graphical form. It is also in slope form.
Types of curves in Economics:-??
There are usually 3 types of curves in economics. Those 3 types are bars, circles, and line graphs.
How many graphs are there in Economics?
There are a total of 20 major and minor graphs and curve in Economics.
List of Important Curves in Economics:-
1) Lorenz Curve (1905)
2) Gini Coefficient ( 1912)
3) Laffer Curve (1974)
4) Philips curve (1958)
5) Kuznets Curve (1950)
6) Keynesian Theory
7) Laisse Faire Theory
8) Beveridge Curve
9) Engel Curve
10) Rahn Curve
11) Supply and Demand
12) production Possibility Curve
Let’s learn Important Curves in Economics:-??
1) Lorenz Curve (1905):-
It was made by American economist Max Lorenz in the year 1905. It shows income inequality in countries and people.
The graph explains the one side as National Income and other as no. of household produce. The farther the curve from the baseline, the higher will be inequality.
When the graph is below the equality line it is shaded and called “Gini Coefficient“. Lorenz curve can be said as Visual Indicator and Gini coefficient is said as Mathematical Indicator.
The straight line going through it is called the line of equality.
Use of Lorenz curve in today’s life:
1) Helps in Data analysis and in deep learning
2) To check weaker sections of society
3) Helps for Business means to create the blueprint.
4) Distribution of wealth is seen in different sections of society. Later on, it helps businesses to est in the target area.
5) Helps in creating economic survey and Budget of country.
6) With this survey you can check poor caste, religion, language, gender, and state of the country.
7) Simplest way to represent inequality in society. this had helped the IT industry and business analysts. Quantity can be measured via it.
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| Lorenz-curve-UPSC |
2) Gini Coefficient (1912):-
It is the statistical measure of distribution developed by Italian statistician Corrado Gini in 1912.
Used for the gauge of economic inequality, measuring income distribution or, wealth distribution of all people or population.
It is measured from 0 to 1. Where 0 is perfect equality and 1 is inequality. When the value is above 1 then it is negative income growing.
3)Laffer Curve (1974):-
It was developed by economist Arthur Laffer in the year 1974. It notifies you all about tax collection, the relationship between tax rates, and the amount of tax revenue collected by the respective Government.
It is an inverted U- shape. It can be uncertain and disputed. Tax revenue changes when the tax rate is decreasing or increasing. price can fluctuate through it.
It also states that when tax is increased tax collection is more but when it increases very much then tax collection is less.
There are two ways arithmetic and economic. Arithmetic is short-term and the economy is long-term.
Increasing and decreasing tax rates can be part of raising tax revenue.
This is one of the main Important curves in Economics. Economists have a green signal for it.
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| Source: Slidevilla |
Why it was criticized???
Laffer assumes that government revenue is a continuous function of the tax rate. However, in some theoretical models, the curves may be different, leading to an inability to find a maximum tax solution at the tax rate.
In addition, the Lafarge curve is based on the assumption that tax revenues are used to produce a public good that is usable and separate from the supply of labor, which may not be true in practice.
The loafer curve presented is simple because it assumes one tax rate and one labor supply. The actual arrangement of the fiscal system is more complex and there are serious doubts about the appropriateness of a single retail tax rate.
In addition, income can be a multifunctional function of the tax rate; For example, a few percent increases in the tax rate do not cause the same decrease in income (a kind of hysteresis) in the tax rate.
In addition, the leverage curve does not explicitly take into account the type of tax evasion. It is possible that if all producers were given two factors to survive in the market (ability to produce efficiently and ability to avoid taxes), the revenue generated by tax avoidance could be more than avoidable and thus the curve was found to be the largest.
The reason for this conclusion is that even producers with low productivity (high production costs) have a strong deterrent, so producers who discriminate insolvency are subject to a single tax. However, if avoidance and productivity are not related, this effect disappears.
4)Philips Curve (1958):-
It is developed in 1958 by economist William Philips. It gives the relationship between Inflation and Unemployment.
A high level of Unemployment can be achieved only at high levels of inflation. Supply and demand can also be judge through it. It failed to derive the Stagflation in the 1970s.
Economist Milton Friedman stated this curve is important only in the Short term. It is the most simplistic form of the curve in all.
There was a study done in 1960 by two scientists on it. Then saw that when inflation was high unemployment was low. This was so hard since 1974 seven Nobel prizes had been given.
Philips curve was made to guide some macroeconomic policies for sustainable development.
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Stagflation: ✌✌
In the 1970s, countries experienced both inflation and unemployment, also known as stagflation. According to the theory based on the Phillips curve, this could not have happened, and the curve was caused by a group of economists led by Milton Friedman. [Quote required] Friedman argues that Phillips’s curved relationship was only a short-lived event.
In it, he sent eight years after Samuelson and Solo, who “put all our speeches into words in the short term, reshape what would happen in the next few years.
It would be wrong to think that our menu in Figure 2, Behavior, will take a long time. the functions we do strategically can change in a certain way.
” Samuelson and Solo argued eight years ago that long-term workers and employers take inflation into account.
As a result, wages will rise close to the expected inflation of the contracts. Unemployment is starting to return to previous levels, but now inflation is high.
This means that there are no long-term trade-offs between inflation and unemployment.
This importance is important for practical reasons, as it suggests that central banks should not consider the unemployment target below the natural rate.
Recent studies suggest that low inflation and unemployment trade moderately. The work of George Ackerloff, William Dickens, and George Perry suggest that if inflation were to fall from two to zero, unemployment would rise steadily to 1.5 percent.
This is because the actual wage reduction is higher than the nominal wage of employees in general. For example, when inflation is zero and inflation is three percent instead of a one percent pay cut, employees will accept a 2 percent increase.
5) Kuznets Curve (the 1950s):-
It was developed in the 1950s by economist Simon Kuznets. It shows the relationship between Growth & inequality. It is in an inverted U shape.
The left part of the graph signifies you developing economies and the right side shows a developed economy.
It is the most consistent curve ever from its beginning. Inequality showed on the y-axis and economic development and per capita on the x-axis.
Liberalization:
The Dobson and Ramlagan study identified a link between inequality and trade liberalization. Mixed conclusions have been found for this idea – trade liberalization does not lead to inequality, less inequality, or even greater disparities in some developing countries.
Therefore, Dobson and Ramlogan suggest that trade freedom may be related to inequality through the Kuznets curve framework.
The Trade Liberalization and Inequality Graph measures trade transparency on the X-axis and inequality on the Y-axis. Dobson and Ramlogan define trade transparency on the basis of exports and imports (total trade) and the average rate of return;
Inequality is determined by the overall enrollment rate of primary schools, the share of agriculture in total output, the inflation rate, and privatization.
The Kuznets curve relates to the relationship between trade liberalization and inequality (measured by the GINI factor) by examining data used in the trade liberalization policies of several Latin American countries over the last 10 years.
However, many of these countries have moved from low-skilled labor to resource-intensive use. This change will not benefit low-skilled workers as much.
So while their evidence seems to support the Kuznets theory in terms of trade liberalization, Dobson and Ramlougan insist that redistributive policies must be pursued simultaneously to reduce the initial increase in inequality.
6) Keynesian Theory:–
It was brought when a great depression period was going on. The economist suggested increasing national Income which will help every country survive and supply and demand will continue well. As production increases the distribution also increases.
7) Laisse- Faire theory:-
Govt should not interfere in any business affairs. It is a totally independent type of work of the organization.
8) Beveridge Curve:-
It is a graphical representation of unemployment (horizontal) and job vacancy rate ( vertical). no. of jobs which are filled as per labor force there. This curve is hyperbolic and sloping downwards.
It was developed by two scientists Christoper dow and Arthur dicks in the year 1958. This curve is also called a UX curve.
The drinking curve, or UV curve, was developed by Christopher Dow and Leslie Arthur Dix-Mirox in 1958. denied. Until 1958, they had data available for 12 years from the time the British government began collecting data on job vacancies filled in job postings in 1966.
History of Beveridge Curve:
Dr. and Dix-Mirox presented unemployment and open data in Unemployment Conditions (UV) and plotted the ideal UV curve by adding successive observations as a rectangular hyperbolic.
The UV curve or beverage curve allows economists to use an analytical method, later known as UV analysis, which divides unemployment into different types: scarcity and demand (or cyclical) unemployment and structural unemployment.
In the late 1970s, economists at the London Institute for Economic and Social Research (NIESR) refined this method to create a classification related to the ‘traditional’ classification.
Both the beverage curve and the Philips curve have inherent macroeconomic ideas about market equilibrium, but their views are inconsistent and contradictory.
Probably because the curve analyzes many of the issues addressed by the Beverage to economists, such as the imbalance between unemployment and job vacancies at the aggregate and industry levels, and against the trend.
Cyclical change and measurement of job vacancies. The curve was never drawn after William Beveridge in the 1980s, and the exact origin of the name remains unclear.
9) Engel Curve:-
It displays how household expenditure on a particular good or service varies with a change in household income.
Given the arrangement of the angel curve, the increased clauses suggest that the sum of the flexibility of total expenditure should be increased by a proportion of the corresponding total budget.
Saturation precludes the possibility of the common property of angular curves between all goods, as it means that the yield elasticity of all goods reaches zero from a certain level.
The connection limit is due to the assumption that the household always takes the upper limit of the possibilities, which is only realized if the limit of the possibilities cannot fill everything in the house.
Application of it:
In microeconomics, angel curves are used for corresponding scale calculations and related wellness comparisons, and the characteristics of demand systems such as aggregation and range are determined.
Angular curves have also been used to examine how the changing industrial structure of emerging economies relates to changes in the structure of domestic demand.
One explanation for industry-specific trading theory is the assumption that countries with similar income levels have the same preference for goods and services (Lindner’s hypothesis), suggesting an understanding of how domestic demand can affect income. An important role in shaping global trade patterns.
The Engels curve is also important in measuring inflation, and tax policy.
10) Rahn Curve:-
It displays the relationship between government spending and the GDP growth rate of an economy. It also the same inverted U Shaped. Made in 1996 by American scientist Richard Rahn.
11) Supply and demand curve:-
The demand by consumers for daily needs and supply of sellers in the market.
Can the demand curve be a straight line?
Yes, why not it can be a straight line.
12) Production possibility curve:-
With the availability of resources & technology and raw materials then diff between two goods are plotted to give PPC. The curve helps in deciding what to produce’.
Position:
At any given time, the two most important factors in PPF’s position are the position of technology and management experts (reflecting available production operations) and product components (materials, direct workers, and factory overhead).
With PPF it is possible to achieve only a few points or in a short time. If technology improves in the long run or the supply of product components increases, the production economy of both goods will increase; If this potential is realized, economic growth will take place.
This growth is reflected in the shift of the production potential line to the right. On the contrary, a natural, military, or environmental disaster may shift the PPF to the left as a result of declining economic productivity.
Thus, all points on or around the curve are part of a product range: the economy is a combination of potentially productive goods.
If the two products described are capital investment (to increase future production potential) and current consumer goods, the higher the investment this year, the more PPF will change in the coming years.
How a change in curves represents a technological advancement that promotes the potential of one good product, Gunn says PPF is moving more favorably toward “proactive” product potential in this direction than others.
Similarly, if good capital is used more and capital grows faster than other factors, the possibility of growth in favor of capital may be biased.
Microeconomics and Macroeconomics:- ??
Microeconomics is a study related to individuals, firms.
Macroeconomics is a study related to big MNC companies or strong firms which are related to large-cap.
Conclusion:
In this article, we explained the important curves in economics. How they are used in checking various parameters in Economics. In this above article, we had done analysis based on knowledge provided on the internet on books.
JAY HIND…..!!!!