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How microeconomics relates to the banking industry

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Are determined by market outcomes ( Hoose 53), tis means that structure-conduct-performance hypothesis gives greater concentration, ad gives banks more market, wich with time leads to fewer loans and deposits, ad higher loan rates which reduces consumer welfare. Iducement to innovations. Tis is done by providing credit to the businessmen and entrepreneurs, cnsequently helping banks to encourage these people to be innovative. A a result, nw products are introduced to the market, ad this creates a favorable outcome on the microeconomic development. Investment-friendly interest rate structure. Bnks are of low interest rates, s that they can encourage and motivate the business oriented people, ad entrepreneurs to do more investments, tis helps in boosting production rate and trade, hnce increasing the development of microeconomics.

Dvelopment of rural sector. Banks give the rural people liberal concessional interest rates, s that the farmers are able to purchase seedlings and agricultural tools, ad as a result the agricultural sector is improved. Bnks are opened in rural areas to gather together idle savings, ad put these idle savings to productive use, ceating microeconomic development.

Icrease market demand. Te demand and supply of consumer goods is inadequate in low underdeveloped countries, tis is because of low incomes and people of low standards of livelihood. Bnks help these people by pushing up their aggregate demand, wen they provide consumer credit to these people. Bnks have helped to raise the standards of these people by the production of more consumer goods, ad industries. Te microeconomics of the banking industry can also be termed as the microeconomic of any firm. Bnks main role is produce from money, bt they also require inputs such as labor, ad capital (Eyler 100).

Lnding of money in the banks takes place in three forms. Tese are private concerns, frms and household, t others banks in an inter-market, o buying of government debt securities. Wen banks are allocating benefits or assets they depend on the matching marginal revenue, ad the marginal costs for each and every loan (Eyler 101). Mrginal revenue and marginal cost can be linked to each other; tis is because when one market changes, does the market.

Bnks maximize their profits by allocating benefits, util the three markets are able to produce loan-able funds, were the marginal revenue is. ..

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