Price Discrimination
…both provide the same type of service; taking people from one location to another. Price Discrimination Examples Here are six useful price discrimination examples across a number of different areas:…
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Gross Domestic Product (GDP)
…is no longer a factor. For instance, let’s continue with the example we used for calculating nominal GDP, so you can compare the numerical difference between nominal and real GDP…
Commercial Banks
…or certificates of deposits but pays out less than it charges for loans. Functions of Commercial Banks The basic role of a commercial bank is to provide financial services to…
Theory of Storage
The Theory of Storage describes features observed in commodity markets. Here are some basic terminology that needs to be understood to understand the Theory of Storage. Commodity Market A commodity…
Consumer Sovereignty
…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….
Marginal Utility
…service. Example of Diminishing Marginal Utility Here’s a straightforward example: the utility from eating your first sandwich at lunch is much greater than that of the fifth sandwich you consume….
The Principal Agent Problem
…(the agents) and voters (the principals) is an example of the Principal Agent Problem. Principal Agent Problem Examples A widespread real-life example of the principal agent problem is the way…
Indifference Curve
…consumer has no preference for either combination of goods on the same line because they are understood to provide the same level of utility to the consumer. Indifference Curve Example…
Regressive Tax
…of their income as a result of it. For example: If two people spend $150 on shoes and pay a 5% sales tax (just as an example), they both pay…
Malthusian Theory of Population
…number called the common ratio. For example, in the sequence 2, 10, 50, 250, 1250, the common ratio is 5. Additionally, he stated that food production increases in arithmetic progression….
Types of Taxes
…unemployment by increasing low-income people’s purchasing power. Most economies around the world use a progressive tax to assess taxes for individual income. Common, well-known examples of progressive taxes include estate…
Price Floor
…can be sold for. The most common example of a price floor is the minimum wage. This is the minimum price that employers can pay workers for their labor. The…
Average Variable Cost
In the field of economics, the term “average variable cost” describes the variable cost for each unit. Variable costs are those that vary with changes in output. Examples of variable…
Marginal Cost
…give you the change in quantity. Marginal Cost Example Let’s say there’s a small company called ABC Wallets that produces 5,000 high-quality, artisanal leather wallets every year. Every year, this…
Bimetallism
…legal tenders but only one is freely coined. For example, this system was prevalent in France, Germany, or the United States after 1873). Or trade money where both metals are…
Purchasing Power Parity
…are representative of their domestic expenditures. Purchasing Power Parity Example For example: A loaf of bread in the US costs $2, and that amount in Indian Rupees is Indian Rupee…
Determinants of Demand
…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…
Income Elasticity of Demand (YED)
…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….
Financial Intermediaries
…disadvantages of direct finance. Financial Intermediaries Examples 1. Insurance Companies Insurance companies offer insurance to help spread the risk of default. You would go to an insurance company if you…
Consumer Surplus
…consumer pays (“actual price”). Consumer Surplus Example Let’s apply the above formula to an example situation. Let’s say there is a consumer who is in search of a car that…
Introduction to The Stock Market
…interests in companies. These may include publicly or privately traded securities. The New York Stock Exchange (NYSE) is an example of a share market. Usually, large companies will list their…
Opportunity Cost
…What you sacrifice by making a choice ÷ What you gain by making a choice Opportunity Cost Example As an example, you might use opportunity cost to help you decide…
The Federal Reserve
…. . [offers] services to the banking industry and the U.S. government . . . and [conducts] consumer-focused supervision and examination.” The Federal Reserve System The Federal Reserve (known more…
Normative Statement and Positive Statement
…be tested or proven. These are objective statements. For example, the unemployment rate in India in 2017 was 7.1%. The easiest way to discern normative statements from positive statements is…
Uber Price Discrimination Strategy
…results in higher revenue for the firm. For example: Hotel rooms, airline tickets, professional services all offer different prices for different customers. For example: when you are paying for a…
Inflationary Gap
…In practice, an inflationary gap happens when demand for goods and services is greater than production as a result of situations like high employment, high government expenditure, and high levels…
Crowding Out Effect
…example of the crowding out effect as some economists claim that it occurs. Let’s say there’s a large tech company that is planning to spend $10 million on an investment…
Consumer Price Index (CPI)
…other economic measurements into “real dollars.” This measurement allows businesses and the government to make an apples to apples comparison. In the United States, the Bureau of Labor & Statistics…
Demand Pull Inflation
…in the system chasing too few goods. The ‘price’ of a goodwill thus increase. Demand Pull Inflation Example We can take an example of a small country named Staples with…
Price Elasticity of Supply
…Example of perfectly elastic supply Although it is quite challenging to locate real-world examples of perfectly elastic supply, there are a few possible examples. For instance, a perfect competition labor…
Financial Markets
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…
Risk
…cross-section of stocks within the portfolio. In complete markets, there is no compensation for idiosyncratic risk—that is it does not matter for its price. For instance, in a complete market…
Characteristics of Developing Economies
…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…
Decision Fatigue
…lead to consumers making poor choices with their purchases. For example, former U.S. President Barack Obama once said, “You’ll see I wear only gray or blue suits, I’m trying to…
The Fisher Effect
…the nominal interest rate minus the expected rate of inflation (note that in this equation, all rates used should be compounded). The result, in practice, is that as inflation rates…
Allocative Efficiency
…piece. Allocative efficiency will occur when both consumers and producers have free access to information (so no asymmetric information), allowing them both to make the most efficient possible decisions in…