Reference dependent preferences are those that depend on comparisons to reference points (often the current state (the status quo), past states, expectations about future states, or social comparisons). There are…
Unemployment in India is a complex problem with numerous overlapping and intertwined causes; however, it is possible to identify several key causes. This article will attempt to describe and outline…
…compare the two and see what you are giving up proportionally; in other words, you can understand the ratio of what you’re sacrificing to what you’re gaining. Opportunity Cost =…
…save some of it, and often quite a lot of it. Bad loans: If a bank lends out money to a company and then that company is forced to file…
Aggregate demand (AD) is the total demand for final goods and services in a given economy at a given time and price level. There are four components of Aggregate Demand…
…common characteristics of developing economies. Common Characteristics of Developing Economies 1. Low Per Capita Real Income Low per capita real income is one of the most defining characteristics of developing…
…If a company had $250,000 in revenues and $150,000 in explicit costs, its accounting profit would be $100,000. The same company also had $50,000 in implicit, or opportunity costs. Its…
…a minimum level of revenue during their initial years. 4. Competition and Efficiency The government will need to increase competition between firms and increase the overall efficiency of the economy….
…IT sector dependent on outsourcing. Most developed economies experience slower economic growth as compared to developing countries. For example, in 2016, India had a growth rate of 7.1% while the…
…flow of income. Here are some examples of injections: Investment (I). Money invested by firms in purchasing capital stock. Exports (X). Money coming from abroad to buy domestically produced goods….
…Customs Union is like a free trade area except that member countries maintain a common tariff against non-member countries. 3. Common Market A Common Market is like a customs union…
…eliminate consumer surplus like first-degree discrimination, but it will increase companies’ profit margins for part of the total consumer base. 3. Third Degree Price Discrimination The most common form of…
…typically used to measure income inequality. However, it can also be applied to gauge a population’s degree of wealth inequality. Applying the Gini coefficient to wealth is less common because…
…free-rider problem leads to under-provision of a good or service and thus causes market failure. The Free Rider Problem Explained The Free Rider Problem occurs because of the failure of…
…a company or an asset based on an underlying perception of its true value. This value includes all aspects of the business, regarding both tangible and intangible factors. This value…
…understanding whether a particular decision provides enough benefits to be worth the cost of that decision. To give a straightforward marginal analysis definition, it is a cost-benefit comparison between a…
…and economic theory, we can simplify the field of economics. It helps us understand relationships between variables and allows us to ignore all the other factors which might complicate the…
…they’re meant to be regulating. How does Regulatory Capture Occur? First, regulators spend time with those in the companies they’re meant to be overseeing and gain personal connections with them….
…does not affect it. However, most markets are imperfectly competitive. In an imperfectly competitive market, P has an inverse relationship with Q. In an imperfectly competitive market, too, price is…
…decrease in the price of compliments, then the demand for its compliments will increase. Complementary goods are goods you usually buy together, like bread and butter, tea and milk. If…
…aggregability and rank. Engel curves have also been used to study how the changing industrial composition of growing economies are linked to the changes in the composition of household demand….
…entrants have equal access to technology, there is a constant threat of potential entry. This continuous risk increases competition in the market since there is virtually no cost to enter…
In financial markets, people trade financial securities, commodities, and instruments at prices that reflect supply and demand. There are two types of Financial Markets – the primary market and the…
…consumer sovereignty. The consumer is free to buy any commodity and in whatever quantities his likes. However, in a command economy, the state or central government decides what to produce….
…by area 1 Government Revenue – area 3 Therefore, the welfare loss is area 2 and 4 that comes from production inefficiency (since it costs the domestic company more to…
…used to make decisions on price, output, product development, product promotion and other business scenarios. Game Theory Examples Buyers and sellers negotiating a price Firm and its competitors Auctions Prisoner’s…
…The term itself has its origins in the field of insurance. Today, however, it is discussed in the economic and financial world as well. Moral hazard is often found in…
…their income in taxes than the poor). In such a tax system, those with higher incomes experience a smaller burden of taxation than those with lower incomes. This is particularly…
…Tax Burden The Green box is tax revenue paid by the producer The Blue box is tax revenue paid by the consumer The government collects the blue and green box…
…the underlying instrument. For example: Stock Options 2. Cash Instruments Cash instruments get their value directly by the markets. They can be securities such as loans and deposits, where both…
The real interest rate is found by adjusting a standard interest rate so that the effects of inflation are not present. This allows you to understand the interest rate better…
Demand is defined as the amount of good or service a consumer is willing and able to buy per period of time. It is essential to understand the term “willing…
…Purchasing power parity is used to compare the gross domestic product between countries. PPP is based on the Law of One Price, which implies that all identical goods should have…
…commodities, stocks & bonds. An MMMF holds only money market asset like treasury bills, commercial papers (short-term loans). For example, $100m from checking to MMMF If M1 goes down by…
…it describes how effectively and efficiently—in other words, profitably—a particular company or business is producing its goods or services. At this point, all factors of production are variable (not fixed)…
…come to an end, around the year 1900; this was a period during the late 19th century when income inequality reached an all-time high in the United States. Along with…