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Unemployment in India

…these causes, which vary from macro-level factors (e.g. overall slow economic growth as well as population increases) to more micro-level factors (e.g. the joint family system of business). Understanding the…

Market Failure

…Goods These are goods that can’t exclude people, i.e., if it’s produced, then anyone can consume it, and one person consuming the good doesn’t decrease the availability of the good…

The Fisher Effect

…makes the real interest rate 6%. Here it is plugged into the equation above: 6% [r] = 10% [i] – 4% [π] r = 6% (real interest rate) i =…

The Principal Agent Problem

…agent’s interest is called an “agency cost.” In many real-world examples, the agent will not prioritize the best interest of the principal, but will instead pursue his own goals. Politicians…

Barriers to Entry

…example, there aren’t many railway firms in regional sectors, so the government usually controls the railway. 6. Takeover & Merger Mergers and acquisitions can be used to eliminate competition. For…

Production Possibilities Frontier

…as opposed to what it actually does. In this example, the two commodities that that country produces are food (F) and clothes (C). (This is, of course, a highly simplified…

Cross Price Elasticity of Demand

…are substitutes. For example: Coke and Pepsi If XED < o, then they are complements. For example: Bread and Butter If XED = 0, then they are unrelated. For example:…

Characteristics of Developing Economies

Even though developing nations have very different backgrounds in terms of resources, history, demography, religion and politics, they still share a few common characteristics. Today, we will go over six…

Circular Flow Model

…to finance consumption, e.g. saved in a bank Imports (M): Money sent abroad to purchase foreign goods Taxes (T): Money collected by the government, e.g. income tax and value-added tax…

The Lipstick Effect

…data collected by Kline & Company, a market-research group, the effect had been overstated. The team at the Economist were unable to derive a solid correlation from proving the effect….

Inflationary Gap

…+ I + G + X – M) is greater than aggregate supply, this means there is an inflationary gap, marked below: Inflationary Gap Example For instance, let’s say there…

Price Discrimination

…for example, discounts on bulk purchases (quantity, the most common form of discount with second-degree price discrimination) or charging more for first-class seats (quality). It does not function to entirely…

Commercial Banks

…businesses and individuals. Credit card interest, payments, small loans, deposits, checking, and basic securities trading all contribute significantly to the bottom line. Commercial banks perform the following functions: 1. Agency…

Theory of Storage

…market is a market that trades in primary goods rather than manufactured products. Soft commodities are agricultural products such as wheat, coffee, cocoa and sugar. Hard commodities are usually mined…

Negative Externalities

…over-consumed. Negative Externalities of Consumption Example A common example of negative externalities of consumption is the phenomenon of noise pollution. When someone inconsiderately blasts music (“consumes” music) so loudly that…

Marginal Utility

…– $15 = $5 Difference in units (number of sandwiches): 4 – 2 = 2 Dividing difference in total utility by difference in units: $5 / 2 = $2.50 This…

Income Elasticity of Demand (YED)

…Quantity Demand) / (New Income – Old Income)/(Old Income) = (4,000 – 5,000)/(5,000) / (40,000-60,000)/(60,000) = ~0.67 This produces an elasticity of 0.67, which indicates customers are not particularly sensitive…

Absolute Advantage

…a given product of better quality, more quickly, and for higher profits than can another firm or nation. Comparative advantage, by contrast, looks at international trade more broadly—it accounts for…

Indifference Curve

…the combinations of fries and burgers that can be bought with $40. For example, 15 burgers at $2 each and 10 fries at $1 each will add up to $40….

Deadweight Loss

…loss. Deadweight losses can be caused by numerous economic factors, including price floors (e.g. rent and price controls), price ceilings (e.g. living and minimum wage laws), taxation, and monopolies. Why…

Consumer Price Index (CPI)

…only has 3 Apples (priced at $1 in 2019) and 2 Oranges (priced at $0.50 in 2019), then our basket will cost $1×3 + $0.50×2 = $4.00. In 2020, an…

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…

Nominal Interest Rate

…Nominal interest rate = [(1 + 4%) x (1 + 3%)] – 1 Breaking this down, here’s how that formula would look, step-by-step: Nominal interest rate = [(1 + 0.04)…

Determinants of Demand

…and price. 1. Normal Goods When there is an increase in the consumer’s income, there will be an increase in demand for a good. If the consumer’s income falls, then,…

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…

Uber Price Discrimination Strategy

…lot more for a nicer car. Downtown Los Angeles to Los Angeles Airport (Estimated Fares) UberX – $20 UberPlus – $50 UberBlack – $75 UberSUV – $95 UberLUX – $110…

Allocative Efficiency

…as they could be for all buyers/consumers in that economy. In other words, allocative efficiency means that resources—meaning capital, goods, and services—are allocated in an optimal way. That is, no…

Consumer Surplus

…sold for only $6,000! Let’s plug that into the above formula: Consumer surplus = $8,000 – $6,000 That means, in this case, the consumer surplus is a total of $2,000….

Economic Profit

…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…

5 Macroeconomic Goals

…stable and sustainable economic growth and development that is “real” (non-inflationary) over the long-term. Economic growth in an economy is an outward shift in its Production Possibility Curve (PPC). Another…

Crowding Out Effect

…that they expect to return $12 million, with the assumption that their loans’ interest rate will stay at 3%. The net income, then, is $12 million. Then, the government releases…

Equimarginal Principle

…The equation for the equimarginal principle is as follows: Marginal Utility of A Marginal Utility of B ————————————— = ————————————— Price of A Price of B According to the equimarginal…

Demand Pull Inflation

…level. The term demand-pull inflation is mostly associated with Keynesian economics. For example, if aggregate demand is rising at 3%, but the productive capacity is only rising at 2%. Thus,…

Financial Markets

…secondary market. All well-developed markets have standardized financial instruments. Financial Instruments are assets (claim) for people who hold them and liabilities (obligation) for the issuer. For example, securities such as…

Risk

…of 3 years Returns Probability Year 1 5% 1/6 Year 2 8% 1/3 Year 3 9% 1/2 Expected Value = 1/65 + 1/38 + ½*9 = 8 2….

Opportunity Cost

…$15. You decide to choose a cashier job. To figure out what you’re sacrificing to what you’re gaining, you would use the following calculation: $20 (waiter) – $15 (cashier) =…