CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The
interconnection in the characteristics of the nation’s market, such as the
number and relative strength of buyers and sellers and degree of collusion
among them, level and forms of competition, extent of product differentiation,
and ease of entry into and exit from the market coupled with relevant cost
theory has direct influence on the growth of the economy. However, the
researcher is identifying market structures and cost theory as a tool by the government
to build the country’s economy. Basic types of market structure include perfect
competition where many buyers and sellers, none being able to influence prices
and oligopoly with several large sellers who have some control over the prices.
Others are monopoly with single seller and considerable control over supply and
prices and finally monopsony with single buyer and considerable control over
demand and prices.
A long line of scholarship posits a
causal relationship between the market structure and economic growth. According
to this view, well-developed market structures especially those imbued with
rights that protect investors do promote the efficient allocation of capital to
projects with high rates of return, in turn stimulating savings, investment,
and economic growth. Evidence from both single-country and cross-country
studies suggests that economies with more developed market structure begin to
grow earlier, attain higher growth rates, and achieve higher levels of per
capita income than countries with less developed market structures. These
findings have prompted researchers to consider more carefully how the market structure
affect real economic activity in the long run. For example, in an important study
that exploits cross-country and cross-industry differences, Rajan and Zingales
(1998) conclude that market structure development helps nations surmount financial
and moral hazard and adverse selection problems and hence reduces the costs of
external finance to the nations.
Many empirical studies have followed
Rajan and Zingales (1998) in exploiting differences across space and time to
identify a causal link between market structure and economic development, and
recent research has focused on the mechanisms underlying this relationship. A
well organi8zed structure are thought to improve resource allocation and fund
projects with higher rates of return by efficiently matching the policies of
the government and the will of the electorates and by monitoring the progress
in economic growth (Kashyap et al., 2002).
The theory of costs analyses the
behaviour of cost curves in the short run and the long run and arrives at the
conclusion that both the short run and the long run curves are U-shaped but the
long-run cost curves are flatter than the short-run cost curves. It involves a
systematic approach to estimating the strengths and weaknesses of alternatives
that satisfy transactions, activities or functional requirements for a
business. It is a technique that is used to determine options that provide the
best approach for the adoption and practice in terms of benefits in labor, time
and cost savings etc. cost theory can also be adopted as systematic process for
calculating and comparing benefits and costs of a project, decision or
government policy. It is often used by governments and other organizations,
such as private sector businesses, to appraise the desirability of a given
policy. It is an analysis of the expected balance of benefits and costs,
including an account of foregone alternatives and the status quo. The researcher
is however of the opinion that cost theory will help predict whether the
benefits of an economic policy outweigh its costs, and by how much relative to
other alternatives.
1.2 STATEMENT
OF THE PROBLEM
Economic
growth can be related to increase in the inflation-adjusted market value of the
goods and services produced by an economy over time. It is conventionally
measured as the percent rate of increase in real gross domestic product. An
increase in growth caused by more efficient use of inputs (such as market
structure, capital, population, or territory) is referred to as intensive
growth. GDP growth caused only by increases in the amount of inputs available
for use is called extensive growth. Generally, accurate application of cost
theory and proper market structure identifies choices that increase welfare
from a utilitarian perspective. An analyst using cost theory should recognize
that perfect appraisal of all present and future costs and benefits is
difficult, and while it can offer a well-educated estimate of the best
alternative, perfection in terms of economic efficiency and social welfare are
not guaranteed. The study examines the use of market structures and cost theory
as a tool by the government to build the country’s economy.
1.3 OBJECTIVES OF THE STUDY
The
following are the objectives of this study:
1. To
examine the use of market structures and cost theory as a tool by the
government to build the country’s economy.
2. To
identify the various types of markets structures and their effect on economic
growth.
3. To
determine the effect of cost theory on economic growth.
1.4 RESEARCH QUESTIONS
1. How
can market structures and cost theory be used as a tool by the government to
build the country’s economy?
2. What
are the various types of markets structures and their effect on economic
growth?
3. What
is the effect of cost theory on economic growth?
1.6 SIGNIFICANCE OF THE STUDY
The
following are the significance of this study:
1. The
outcome of this study will educate the government and policy makers in charge
of the capital market regulation on how the market structure and the cost
theory can be used as a tool for economic growth.
2. This research will also serve as a
resource base to other scholars and researchers interested in carrying out
further research in this field subsequently, if applied will go to an extent to
provide new explanation to the topic
1.7 SCOPE/LIMITATIONS OF THE STUDY
This
study on the use of market structures and cost theory as a tool by the
government to build the country’s economy will cover all the basic types of
market structure and cost theories and their influence on a nation’s economy.
LIMITATION OF STUDY
Financial constraint- Insufficient fund tends to impede the
efficiency of the researcher in sourcing for the relevant materials, literature
or information and in the process of data collection (internet, questionnaire
and interview).
Time constraint- The researcher will
simultaneously engage in this study with other academic work. This consequently
will cut down on the time devoted for the research work.
REFERENCES
Allen,
Franklin, 1990. “The Market for Information
and the Origin of Financial Intermediaries.” Journal of Financial Intermediation 1, 3-30.
Grossman,
Richard S., 2007. (R)Evolution in Banking: The Development of Commercial
Banking in the Industrialized World, 1800-2000. Unpublished manuscript,
Wesleyan University.
Kashyap,
Anil K., Raguram G. Rajan, and Jeremy C. Stein, 2002. “Banks as Liquidity
Providers: An Explanation for the Co-existence of Lending and Deposit-Taking.”
Journal of Finance 57(1), 33-73.
Rajan,
Raghuram G. and Luigi Zinagales, 1998. “Financial Dependence and Growth.” American Economic Review 88(3), 559-86.