The Consumer Price Index (CPI) is usually represented by a basket of goods or products. It measures the average change in the price of this basket of goods over a defined period of time. Economists and Policymakers widely use the Consumer Price Index as a measurement for the inflation rate.
A normative statement carries judgment. Normative statements are opinions. They are subjective statements.
The Easterlin Paradox was theorized by Professor Richard Easterlin, who is an Economics Professor at the University of Southern California. In his paper titled, “Does Economic Growth Improve the Human Lot? Some Empirical Evidence”, he concluded that a country’s level of economic development and level of happiness are not connected.
Unemployment in India is a complex problem with numerous overlapping and intertwined causes; however, it is possible to identify several key causes.
A tariff is a type of trade barrier imposed by a government that acts as a tax on imports. The tariff may be in the form of a specific or ad valorem tax.
Commercial Banks are a type of financial institution that provides loans, accepts deposits, and offers financial products and services like savings accounts or a certificate of deposit to individuals and businesses.
The result of the interaction between consumers and producers in a competitive market determines Supply and Demand equilibrium, price and quantity.
The concept of time inconsistency can help us understand why some people procrastinate at work until the last minute, why we often buy gym memberships and don’t end up going, and much more.
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 and able.” Many people want to buy products that they cannot afford at prices they cannot pay.
A quota, which is a type of trade barrier, is a restriction on the quantity that can be imported into a country. Quotas and Tariffs are effectively the same except that governments collect revenue from tariffs while exporting firms can collect extra revenue from quotas.
Marginal Revenue (MR) is the increase in the Total Revenue (TR) that is gained when the firm sells one additional (marginal) unit of that product. In other words, MR is the revenue obtained from the last unit sold.
The Decoy Effect or the Asymmetric Dominance Effect is a cognitive bias in which consumers will tend to have a specific change in preferences between two options when also presented with a third option that is asymmetrically dominated.
Decision-making under uncertainty is a complex topic because all decisions are made with some degree of uncertainty.
The marginal propensity to consume (MPC) is the increase in consumer spending due to an increase in income. This can be expressed as ∆C/∆Y, which is a change in consumption over the change in income.
Price Elasticity of Supply is defined as the responsiveness of quantity supplied when the price of the good changes. It is the ratio of the percentage change in quantity supplied to the percentage change in price.
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).
The Free Rider Problem occurs when there is a good (likely to be a public good) that everyone enjoys the benefits of without having to pay for the good. The free-rider problem leads to under-provision of a good or service and thus causes market failure.
Deflation is defined as the decrease in the average price level of goods and services. It means a general decrease in consumer prices and assets, but the increase in the value of money. If the inflation rate is negative, i.e., below 0%, then the economy is experiencing deflation.
The Washington Consensus refers to a set of free-market economic policies supported by prominent financial institutions such as the International Monetary Fund, the World Bank, and the U.S. Treasury. A British economist named John Williamson coined the term Washington Consensus in 1989.
Demand Pull Inflation involves inflation rising as real Gross Domestic Product rises and unemployment falls, as the economy moves along the Phillips Curve. Demand Pull Inflation is commonly described as “too much money chasing too few goods”.
Biased beliefs are consistent and predictable differences between actions and consequences. Models have been created to understand these systematic differences and attempt to predict the actions of agents with biased beliefs.
The Marginal Rate of Substitution (MRS) is defined as the rate at which a consumer is ready to exchange a number of units good X for one more of good Y at the same level of utility.
Behavioral economics is a field of economics that attempts to understand why people behave ‘unexpectedly’ in contrast to the traditional economic theory of the rational individual.
An indifference curve depicts a line representing all the combinations of two goods that consumers place equal value. That is to say, they would be indifferent to either good.
The Environmental Kuznets Curve is used to graph the idea that as an economy develops, market forces begin to increase and economic inequality decreases. More specifically that as the economy grows, initially the environment suffers but eventually the relationship between the environment and the society improves.
An Inheritance Tax is a tax paid by the individual who inherits a deceased person’s property or money. Keep in mind that an inheritance tax is different from an estate tax. An estate tax is a tax imposed on a deceased individual’s assets.
The Liquidity Preference Theory says that the demand for money is not to borrow money but the desire to remain liquid. In other words, the interest rate is the ‘price’ for money.
A Monetary System is defined as a set of policies, frameworks, and institutions by which the government creates money in an economy. Such institutions include the mint, the central bank, treasury, and other financial institutions. There are three common types of monetary systems – commodity money, commodity-based money, and fiat money.
A more equitable distribution of income may help accelerate growth and promote economic development. Equitable doesn’t mean equal distribution of income. It refers to the distribution of income that is ‘fair,’ but the concept of ‘fair’ is subjective.
There are two exceptions to the Law of Demand. Giffen and Veblen goods are exceptions to the Law of Demand. However, they are extreme cases and can be quite difficult to prove. But economists generally agree that there are rare cases where the Law of Demand is violated.
Every country has macroeconomic goals that it wants to achieve; these goals or objectives are key to ensuring long-term stable economic success. These are the five main macroeconomic goals that most central banks aim to achieve.
The Principal Agent Problem occurs when one person (the agent) is allowed to make decisions on the behalf of another person (the principal). In this situation, there are issues of moral hazard and conflicts of interest. Politicians and voters is an example of the Principal Agent Problem.
The Theory of Contestable Markets states that when barriers to entry into a market are weak or low or in some cases non-existent, and assuming that all entrants have equal access to technology, there is a constant threat of potential entry.
A stock market (also known as an equity market or share market), is a collection of buyers and sellers of stocks. These stocks represent ownership interests in companies. These may include publicly or privately traded securities. The New York Stock Exchange (NYSE) is an example of a share market.
Microtransactions are in-game purchases that unlock specific features or gives the user special abilities, characters or content. The purchases are virtual. The cost of these transactions can range from $0.99 to $99 (possibly even more).
Aggregate Supply And Demand provide a macroeconomic view of the country’s total demand and supply curves.