Income Tax: Diversification, Default, and Residency Rules
1. Diversification and Application of Incomes
Diversification of Income
Diversification of income refers to the strategy of earning income from multiple sources rather than relying on a single source. This is a fundamental risk management technique in personal finance and business.
- Risk Mitigation: By spreading income generation across various channels, an individual or business reduces the impact of poor performance or failure in any one area. For example, if a business relies only on one product
Monopoly, Monopolistic Competition and Market Price Dynamics
Monopoly — Market Structure & Price Determination
Definition
Monopoly: A market structure where a single firm controls the entire market for a product or service.
Features
- Single seller: One firm supplies the entire market.
- Unique product: No close substitutes for the product.
- Barriers to entry: High barriers prevent other firms from entering the market.
- Price maker: The firm has significant control over the price.
Equilibrium of the Firm
Definition: A monopoly firm maximizes profit by producing at
Read MoreEconomic Principles: Supply, Production, and Market Structures
Supply Fundamentals
1. Determinants of Supply
- Price of the Good: Higher prices generally increase supply.
- Cost of Production: Lower production costs increase supply.
- Technology: Improved technology can increase supply.
- Expectations: Suppliers’ expectations about future prices or demand can influence supply.
- Number of Suppliers: More suppliers in the market increase supply.
- Government Policies: Taxes, subsidies, and regulations can affect supply.
2. Law of Supply
- Definition: States that, ceteris paribus (
Fundamental Concepts of Demand, Elasticity, and Economic Principles
Core Economic Principles
These principles help in making rational economic decisions by analyzing costs, benefits, and resource allocation.
1. Opportunity Cost
- Definition: The value of the next best alternative foregone when making a decision.
- Example: If you spend ₹100 on a movie ticket, the opportunity cost is what else you could have bought with that ₹100.
2. Marginal Principle
- Definition: Decisions are made based on the additional (marginal) benefits and costs of an action.
- Example: Produce more
WACC Calculation and Capital Structure: Optimal Leverage & Pecking Order
Weighted Average Cost of Capital (WACC)
WACC = the weighted average cost of the financial resources used by a company or project after taxes. It represents what it costs the company to obtain financing. It combines the cost of debt and the cost of equity (what shareholders require), weighted according to the proportion that debt and equity have in the capital structure.
CAPM Assumptions
- Perfect markets (perfect competition, free information for all investors, and no transaction costs).
- Homogeneous
Key Concepts in International Finance and Economics
Role of the International Monetary Fund (IMF)
The IMF provides financial assistance to countries in crisis. It helps stabilize exchange rates and balance of payments. In return, it requires economic reforms.
Members of the International Financial System
It includes central banks, governments, commercial banks, the IMF, and the World Bank. It also includes financial markets and investors. Together, they manage global financial stability.
Why the US Dollar is the Global Reserve Currency
The dollar is widely
Read More