Theory of Production: Short-Run Analysis
…much of each kind of labor, raw material, fixed capital goods, etc., that it employs (its “inputs” or “factors of production”) it will use. Economics, models, and theories are not…
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Real Interest Rate
…is as follows: Real Interest Rate (R) = Nominal Interest Rate (r) – Rate of Inflation (i) The more precise and mathematical formula is: (1+ (R)) = (1+ (r)) /…
Economic Growth
…American economy was only growing at 1.6%. This statistic can be misleading because India’s GDP was $2.264 trillion in 2016, while the US was $18.57 trillion. It would be more…
Economies of Scope
…begin making croissants, they are primarily using the same kinds of baking equipment (e.g. ovens), supplies (e.g. pans), storage (e.g. shelving), and distribution methods (e.g. via truck to local grocery…
Trading Bloc
…Trading Blocs Examples – North American Free Trade Agreement (NAFTA) – European Economic Area (EEA) – Union of South American Nations (Unasur/Unasul) 1. Trade Creation Eliminations of trade barriers for…
Wealth Effect
…to withdraw equity from one’s home via mortgage equity withdrawal, as well as to remortgage one’s home. The savings ratio (that is, the ratio of savings to disposable income) decreases….
Adverse Selection
…(e.g. logging, commercial fishing) higher premiums. Insurance providers lower their risk of dealing with higher-cost claims through limited coverage as well as higher premiums. Without these targeted price increases, adverse…
Duopoly Market Structure
…and Android Electronic payments: MasterCard and Visa Soft drinks: Coca-Cola and Pepsi High-end auctions for art and antiques: Sotheby’s and Christie’s Aircraft manufacturer: Boeing and Airbus Shipping: UPS and FedEx…
What is Economics?
…actors and the ways that economies behave on larger scales. In practice, this involves a focus on the economies of states (e.g. Germany) and regions (e.g. the European Union). The…
Variable Cost
…costs increase as they make more T-shirts: 1 T-shirt5 T-shirts10 T-shirtsCost of raw materials (fabric, thread) $4 $20 $40 Cost of labor (sewing the T-shirts) $6 $30 $60 Variable costs…
Monopsony Market Structure
…seller/producer of goods/services, and many buyers; conversely, monopsonies involve the other side of the buying and selling equation. Notably, even though monopsony and monopoly differ, companies with monopsony power are…
Gross Domestic Product (GDP)
…base year is still 2015: Year Nominal GDP Real GDP GDP Deflator (rounded) Price level increase 2015 $800,000 $800,000 100.0 N/A 2016 $1,325,000 $1,150,000 115.2 15.2% 2017 $2,220,000 $1,500,000 148.0…
Financial Institutions
…invest. 6. Mutual Funds Mutual funds pool people’s money to make investments. People commonly refer to them as “investment companies” or “registered investment companies.” Hedge funds are not mutual funds,…
Subsidies
…said loans. They may also include tax concessions, tariffs on competitors’ goods, price ceilings/floors, and more. Direct subsidies, on the other hand, are those that involve directly giving funds to…
Monopoly Market Structure
…curve to the price line. Profit Maximizing Output is set at Marginal Cost (MC) = Marginal Revenue (MR) Revenue Maximizing Output is set at Marginal Revenue (MR) = A Revenue…
Collective Bargaining
…2019, median weekly pay for non-union workers was $892, while it was $1,095—more than $200 more—for union workers. Workers in unions are also more likely to have good benefits, safe…
Washington Consensus
…foreign direct investment. The privatization of state enterprises. Typically, in developing countries, these industries include railway, oil, and gas. The eradication of regulations and policies that restrict competition or add…
Introduction to The Stock Market
…seller’s loss will be (-$10). If the borrowed share’ price drops in value up to $50, the short seller will make a $10 profit. Questions about the Stock Market 1….
Monetary System
…treasury, and other financial institutions. There are three common types of monetary systems – commodity money, commodity-based money, and fiat money. Currently, fiat money is the most common type of…
Diseconomies of Scale
…and divisions. On a larger scale, there may be fewer meetings with in-person communication and more written contact (i.e. via email) between management and employees. This makes it harder to…
Trade Finance
…its acceptance; this is typically done by stamping “accepted” across the face of the draft. Under the UCC, the acceptance “may consist of the drawee’s signature alone.” The buyer has…
Introduction to Game Theory
…that there is always a temptation to defect. Action of A / Action of BCooperateDefectCooperate Fairly Good (+5) Bad (-10) Defect Good (+10) Mediocre (0) Sequential Move Games The Prisoner’s…
Trade Barriers
…reflect higher productivity. Otherwise, there is no comparative advantage in producing that product, or the owners would have to reduce wages to match productivity. For example, the U.S. has import…
Money Multiplier
…far1 $50 $5 $45 $50 2 $45 $4.50 $40.50 $95 3 $40.50 $4.05 $36.45 $135.50 4 $36.45 $3.64 $32.81 $171.95 5 $32.81 $3.28 $29.53 $204.76 6 $29.53 $2.95 $26.58 $234.29…
Aggregate Supply And Demand
…= C + I + G + (X – M). It shows the relationship between Real GNP and the Price Level. Factors that Affect Aggregate Demand 1. Net Export Effect…
Price Elasticity of Supply
…in quantity supplied is: [Quantity Supplied (New) –Quantity Supplied (Old)] /Quantity Supplied (Old)) [105 – 75] / 75 = (30/75) = 0.4 So we note that % Change in Quantity…
Economics of Buying vs Renting a Textbook
…subtracting Amazon fees ($3.75 or 15%) and shipping (USPS Media Mail at $4.53 for under 6 pounds), you’re left with $16.72. You would have to wait a couple of months…
Purchasing Power Parity
…2 Pesos. The nominal exchange rate is, for example, $0.25 to a Peso. The real exchange rate would be = 0.25 x (2/1) = 0.50. This rate means that half…
Constant Returns to Scale
…of production. In other words, when inputs (i.e. capital and labor) increase, outputs likewise increase in the same proportion as a result. As an example of constant returns to scale,…
Price Floor
…a binding price floor. Conversely, if a company would like to pay employees $10, this will not work, because that amount is lower than the price floor—in this case, it…
Marginal Revenue
…effort invested. For example, we assume that when a firm sells 5, 6 and seven units of a good, the firm’s Total Revenue is $20, $25 and $28 respectively. Therefore,…
Consumer Sovereignty
…we assume consumers will always make a rational decision, however, in reality, this isn’t always the case. Decision fatigue is an example of irrational consumer behavior. 6. Combined Demand Rarely…
Expansionary Monetary Policy
…the sky. Rather, central banks might mail checks to people across the country. Sometimes, the check will come with a limited time frame—an expiration date, in effect—encouraging people to spend…
Aggregate Demand
…(AD); Consumption (C), Investment (I), Government Spending (G) and Net Exports (X-M). Aggregate Demand shows the relationship between Real GNP and the Price Level. Factors that Affect Aggregate Demand 1….
About The Intelligent Economist
…at: prateek@intelligenteconomist.com This site is ideal for: Anyone seeking a free (and high-quality) education on important economics topics. Teachers who want to supplement their material for their class or curriculum….
The Multiplier Effect
…k = 1/MRL = 1/(MPS + MRT + MPM) = 1/(1-MPC) Multiplier Effect Example If the government increases expenditure by $100,000, then the national income or real GDP increases by…