Equimarginal Principle
…Assumptions Underlying Marginal Utility Theory Marginal utility theory rests on the assumption that consumers are always rational (a common assumption in the field of economics more generally), and that both…
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Welcome to Intelligent Economist
…Southern California). To say I’m passionate about Economics is an understatement. It’s one of the most useful topics we can use to understand our world, plan for the future, and…
The Principal Agent Problem
…companies are owned and operated. The owners (principal) of a firm will elect a board of directors. The board of directors monitor and guide the management team like C-Level executives…
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….
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…
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…
Asymmetric Information
…to produce cheaper information (in the financial sector – companies need to disclose information). Companies are required to follow standard accounting principles, the presence of rating firms, the disclosure of…
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…
The Decoy Effect
…more expensive of the other two options. The Decoy Effect An option is asymmetrically dominated when it is inferior in all respects to one option. However, in comparison to the…
Labor Arbitrage
…of any work that can be performed on a computer (such as computer programming) or that makes use of college education, have been significantly reduced. Often, a prosperous nation (such…
Demand Pull Inflation
…the most common cause of inflation. Demand Pull Inflation involves inflation rising as real Gross Domestic Product rises and unemployment falls, as the economy moves along the Phillips Curve. Demand…
Introduction to Unemployment
…This type is dependent on seasons, such as hiring extra people during the holiday season when more people are required. Seasonal unemployment is completely unavoidable, however, firms could retain workers…
Quota
…compete against lower-priced foreign goods. 3. Unfair Trade Some countries apply quotas to protect local industries from dumping. Dumping occurs when producers in foreign countries have unfair advantages to lower…
Banking Regulations in the United States
…Insurance Commission (FDIC) guarantees all bank deposit accounts up to $250,000. 2. Bank Panics Bank panics is the plural of bank runs (because there is a fear of contagion across…
Peak Oil: Will We Ever Run Out?
…Demand tell us, the price of oil will continue to rise. To combat this, on the demand side, we can try to find substitutes to use instead of oil. While…
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…
Price Ceiling
…ceiling for potatoes at $5 per pound, but the equilibrium price for potatoes is already $4 per pound, this would have no real effect on the price of potatoes. That’s…
Average Variable Cost
…+ VC In order to understand this in terms of the cost per unit, divide each side by the output (Q): TC / Q = (FC / Q) + (VC…
Pricing Stocks
…that are undervalued and overvalued. Discounted Cash Flow This method involves discounting the profits (dividends, earnings and cash flows) that the stock will provide and calculates the value of the…
Foreign Aid
…extraction from the recipient country, or to gain other kinds of commercial access. US Aid may often time buy assistance for American citizens in that nation, alter the course of…
The Lipstick Effect
…For example, instead of buying expensive fur coats, women will instead purchase expensive lipstick or luxury cologne. Psychology Behind The Lipstick Effect The underlying implication is that consumers will buy…
Decision Fatigue
…pare down decisions. I don’t want to make decisions about what I’m eating or wearing. Because I have too many other decisions to make.” Behavioral Economists now understand it as…
The Substitution Effect
…appealing than leisure time. In cases where the substitution effect is more profound than the income effect, people will work more (up to lines W1 and Q1 in the diagram…
Positive Externalities
…produces social benefits that are greater than its private benefits, this is associated with positive externalities of production. Because these goods are typically under-produced by default, they are also under-consumed….
Wealth Effect
…when their portfolios increase in value. In other words, increases in the value of their assets cause consumers to feel more comfortable spending their money. Mentally, they conflate their increased…
The Demographic Transition Model
…decline as compared to the second stage. As an example, Mexico began to arrive at stage three at the beginning of the 21st century. Additionally, China used its One-Child Policy…
Economic Development
…of natural resources, which might lead to pollution, congestion & disease. Development, however, is concerned with sustainability, which means meeting the needs of the present without compromising future needs. A….
Theory of Production: Short-Run Analysis
The Theory of Production explains the principles by which a business firm decides how much of each commodity that it sells (its “outputs” or “products”) it will produce. And how…
Profit Maximization Rule
…to advertising. You should increase the number of times you run your TV commercial as long as the added revenue from running it one more time outweighs the added cost…
The Accelerator Effect
…the growth of the market economy. Investment is a function of changes in National Income, especially consumption. Investment is a key component of aggregate demand. What is the Accelerator Effect?…
Demand Side Policies
…and less predictable as compared to monetary contractions. For example, if the Central Bank is concerned about weak economic growth or relatively high rates of unemployment. The policy reaction would…
Cost-Push Inflation
…order to boost price levels. This resulted in a supply shock and an increase in general prices since oil is an important component of most production processes. Since there was…
The Financial System
The Securities and Exchange Commission (SEC) in the United States financial system is a regulatory body that monitors the financial system, exchange, and securities market. Securities are types of financial…
Objectives of Central Banks
…central bank has to be clear in communicating with financial markets & the public. This helps build trust with the public. The decision-making process has to be made by a…
Theory of Efficiency
…outcome is considered more efficient if a Pareto optimal outcome can be reached by arranging sufficient compensation from those who are made better off to those who are made worse…
Marginal Rate of Substitution
…schedule. CombinationGood XGood YA 2 10 B 3 7 C 4 5 D 5 3 E 6 2 From the table, at point A, we can see that the consumer…