logo image

Efficiency productivity and financial intermediation Essay

Economic resources are normally scarce in nature and therefore consumers will seek to maximize the utilization of these resources in order to gain maximum satisfaction. Efficiency tries to explain how consumers allocate the scarce resources to meet their needs. Types of efficiencies include static, which encompasses allocative and productive efficiencies. Static efficiency explains how much output can be produced currently from a given quantity of resources and if the producers charge a price that equates to the cost of factors of production used in the production of such service or good (Tutor2u, 2008).

Allocative efficiency is when the value attached by consumers is equal to the cost of resources used in the production process. In order to maximize the benefits achieved, the price charged should equal the marginal cost. Under allocative efficiency, no one party can benefit without the other party losing. Production efficiency on the other hand is the firm’s cost of production which can be used in the short and long run. Productive efficiency is attained when the firm produces at average cost at the lowest point.

This is where the company is exploiting the benefits of economies of scale (Tutor2u, 2008). Relationship between productivity and financial intermediaries Financial intermediaries

Need essay sample on "Efficiency productivity and financial intermediation"? We will write a custom essay sample specifically for you for only $ 13.90/page

can be banks, pension funds, building societies, credit unions, insurance companies, mutual funds etc. Financial intermediaries act as a link between the providers of capital and the users. In order to achieve efficiency and growth in productivity, financial intermediation has to be involved (Meon G P, 2006).

Financial intermediaries affect the economic growth by minimizing the transaction and informational costs as well as coordinate the capital available to the most efficient use. Transaction costs are the costs incurred in doing business while informational costs are the costs of accessing the information that helps in decision making. By efficiently allocating the available capital, financial intermediation is able to determine the productivity of the other factors of production. Banks as one of the financial intermediary can provide information on possible investments.

This information could be on investment projects. Banks are able to reduce the cost of project appraisal before lending of capital thus enabling efficient allocation of capital (Meon G P, 2006). The other way in which financial intermediaries could promote efficiency and productivity by fostering technological innovations through the identification borrowers with good ideas that can succeed if funded hence minimizing chances of investing the much needed capital in unproductive ventures (Meon G P, 2006).

Financial intermediaries are also able to pressurize and monitor companies on how they utilize the capital provided to them and therefore encourage good corporate governance. Good corporate governance will in turn ensure that companies invest in prudent investments hence economic growth. The other important function of financial intermediaries is that of provision of an avenue where firms can accumulate savings at lower costs from different economic agents consequently leading to the reduction of information costs. The net result of this is better resource allocation hence economic development. Read about online enrollment system proposal

Apart from all other functions discussed above, financial intermediaries also facilitate easy exchange of goods and services through specialization. Easy and faster exchange of goods and services will definitely lead to economic growth (Meon G P, 2006). Conclusion It is apparent that the financial intermediaries cannot be separated from the allocation of resources in an efficient manner in order to achieve economic productivity. Financial intermediaries play an important role in fostering economic development as elaborated above.

Therefore to achieve efficient allocation of scarce resources to the most productive sectors of the economy hence achieve economic productivity.

References

Meon G P, W. L. (2006, October 10th). Does Financial Intermediation Matter for Macroeconomic Efficiency. Retrieved March 10th, 2009, from University of Brussels: http://dev. ulb. ac. be/dulbea/documents/1082. pdf Tutor2u. (2008, December 10th). Economic Efficiency. Retrieved March 18th, 2009, from Tutor2u: http://tutor2u. net/economics/content/topics/competition/efficiency. htm

Can’t wait to take that assignment burden offyour shoulders?

Let us know what it is and we will show you how it can be done!
×
Sorry, but copying text is forbidden on this website. If you need this or any other sample, please register

Already on Businessays? Login here

No, thanks. I prefer suffering on my own
Sorry, but copying text is forbidden on this website. If you need this or any other sample register now and get a free access to all papers, carefully proofread and edited by our experts.
Sign in / Sign up
No, thanks. I prefer suffering on my own
Not quite the topic you need?
We would be happy to write it
Join and witness the magic
Service Open At All Times
|
Complete Buyer Protection
|
Plagiarism-Free Writing

Emily from Businessays

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out https://goo.gl/chNgQy

We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy