Uncovering The Economic Analysis - Exam And Interview Tips | EAIT

June 21, 2019

Uncovering The Economic Analysis

Industry Profits

The financial or non-financial industry category has got the biggest profits when compared to others.

Considering fourth-quarter reports of last year, 2017, the non-financial industry posted profits of 1,121.5 billion dollars (U.S. Department of Commerce). The financial industry had 497.3 billion dollars (U.S. Department of Commerce).

The figures given are from the domestic industries under corporate profits with inventory valuation adjustments.

The manufacturing industry had 349.6 billion dollars in profits during the same period (U.S. Department of Commerce). Lastly, the durable goods industry posted profits of 199.2 billion dollars (U.S. Department of Commerce).

The Cumulative profit for the financial sector in 2016 was 2007.2 billion dollars. In 2017, the profit stood at 2047.8 billion dollars.

This change represented 40.6 billion dollars gain, which was about 2% profits for 2016 in the non-financial sector stood at 5060.3 billion dollars.

In 2017, the same sector had 5015.4 billion dollars in total profits. This amount represented a decline of 44.9 billion dollars, which is 0.9%.

Under the non-financial industry, the manufacturing sector posted the best performance especially in 2017, 1532.4 billion dollars profits, followed by the other non-financial one at 1528.9 billion dollars.

Furthermore, the corporate durable goods industry out-performed the non-durable one with total 2017 profits of 850.8 billion dollars compared to 678.1 billion of dollars respectively.

There was no sector with negative profits, losses, but a number of them simply experienced a slight decline in profit level. Profit changes affect the expansion or contraction decisions in industries.

Positive changes are good for expansion, whereas declines in profitability may cause contraction of an industry. Expansion refers to the entry of more players and increased investments by the existing entities. Investors get attracted to industries that have got steady profitability.

When an industry has an upward trajectory in terms of profitability over a considerable number of years, investors tend to pump their money in it. However, there is fear among investors in industries that start to pick a downward trend in terms of profitability.

It is always a warning sign of bad times in the foreseeable future, which makes the bearish investors start withdrawing their investments from the industry. It leads to significant contraction of a once large industry.

For instance, people start to sell stocks of companies experiencing declines in profits. Therefore, profitability changes have got a major impact on expansion and contraction of industries.  

Perfect Competition

The chosen article written by David Wessel in April 2018 and titled, Is Lack of Competition Strangling the U.S. Economy?discusses the impact of lack of perfect competition on the U.S. economy.

Perfect competition is a case where companies or sellers have no control over the market price. It is market where the consumers and all sellers have access to equal information hence make informed decisions.

Therefore, the market forces of demand and supply play a major role in controlling prices. Wessel opines that the lack of perfect competition in industries of the United States could be causing the poor performance of the country’s economy (107).

It can be implied from the article of Wessel that the shift from perfect competition to oligopolies within the American industries is the reason for the present high rate of price inflation.

Wessel mentions the theory of market competition, which postulates a rise in prices and fall in output quality as well as quantity in markets with few sellers (115).

When perfect competition is absent, sellers control the prices and quality of products delivered. It is easy for the companies to ignore the plight of consumers and the country in complete pursuit of profits.

Essentially, Wessel seems to suggest that the country needs to encourage stiff competition to cushion the economy from the force of price inflation.

Contact research paper editor in case you need help.

No comments: