Profits

Impact on other variables

Distributed profits go into the income flows of the owner, directly or as dividends. The expected and actual rise in dividends boost the stock exchange quotations. Since shares are concentrated, in their majority, in few hands, and the more so the ownership of private firms, the rich get richer.

The demand pattern for consumption goods changes, with a more convex shape. There is an increase in overall consumption quantities, especially of luxury goods, often leading to a more than proportional growth of imports. In certain market segments prices rise.

Undistributed profits allows, and high rentability incentives, a new wave of investments, partially funded by banks in this "euphoria tide" of positive animal spirits.

Employment in capital goods sectors, as well as in some correlated industries, rise as well. Actual workers can ask for higher wages, credibly manacing strikes that would hurt profits, thus can encounter less-than-usual resistance.

High Trade Profits

In other terms, productivity gains determine rising profits.

High trade profits can prompt other people to entry the market and begin to compete with current traders. In manufacture, this effect, although still present, crucially depends on the easy of imitation of product features and production processes. It's often difficult to enter into highly profitable markets.

If markets were all perfectly competitive in their long run equilibrium, all firms in the economy would have the same constant level of profits: zero. By contrast, in the real world, firms have different profits with certain sectors and certain firms systematically reaching better profits than others.

This is due to ubiquitous imperfect competition, barriers to entry, innovation and product differentiation.