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How microeconomics relates to the banking industry Essay Example

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How microeconomics relates to the banking industry

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Are determined by market outcomes ( Hoose 53), this means that structure-conduct-performance hypothesis gives greater concentration, and gives banks more market, which with time leads to fewer loans and deposits, and higher loan rates which reduces consumer welfare. Inducement to innovations. This is done by providing credit to the businessmen and entrepreneurs, consequently helping banks to encourage these people to be innovative. As a result, new products are introduced to the market, and this creates a favorable outcome on the microeconomic development. Investment-friendly interest rate structure. Banks are the determinants of low interest rates, so that they can encourage and motivate the business oriented people, and entrepreneurs to do more investments, this helps in boosting production rate and trade, hence increasing the development of microeconomics. Development of rural sector. Banks give the rural people liberal concessional interest rates, so that the farmers are able to purchase seedlings and agricultural tools, and as a result the agricultural sector is improved. Banks are opened in rural areas to gather together idle savings, and put these idle savings to productive use, creating a favorable microeconomic development. Increase market demand. The demand and supply of consumer goods is inadequate in low underdeveloped countries, this is because of low incomes and people of low standards of livelihood. Banks help these people by pushing up their aggregate demand, when they provide consumer credit to these people. Banks have helped to raise the standards of these people by the production of more consumer goods, and industries.The microeconomics of the banking industry can also be termed as the microeconomic of any firm. Banks main role is to produce money from money, but they also require inputs such as labor, and capital (Eyler 100). Lending of money in the banks takes place in three forms. These are private concerns, firms and household, to others banks in an inter-market, or buying of government debt securities. When banks are allocating benefits or assets they depend on the matching marginal revenue, and the marginal costs for each and every loan (Eyler 101).Marginal revenue and marginal cost can be linked to each other; this is because when one market changes, so does the other market. Banks maximize their profits by allocating benefits, until the three markets are able to produce loan-able funds, where the marginal revenue is

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Works Cited

Andrews, M. and Josefsson Mats. What Happens After Supervisory Intervention? Considering Banks Closure Options. Washington DC: International monetary fund, 2003. Print.

Enoch, Charles and Green J.H. Banking Soundness and Monetary Policy. Washington D.C: International Monetary Funds, Publication Services, 1997. Print.

Eyler, Robert. Money and Banking: An International Text. New York: Routledge, 2010. Print.

Hoose, V. D. The Industrial Organization Banking. Waco: Springer Heidelberg, 2010. Print.

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Jain T.R. and Ohri, V.K. Introductory Microeconomics and Macroeconomics. New Delhi: VimlaKumariJian, 2006-07. Print.

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Mukerjee, R. Economic Problems of Modern India: Problems of Development, volume1. New Delhi: Allied publishers Ltd, 1995. Print.

Nicholson, Walter and Snyder M. C. Intermediate Microeconomics: And it’s Applications. Mason: Cengage Learning, 2010. Print.

Stiglitz et al. Stability with the Growth: Macroeconomics, Liberalization and Development. New York: Oxford University Press, 2006. Print.

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