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…
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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…
The Lorenz Curve
…graph–the fraction of the population is your x-axis (horizontal axis), while the fraction of income is your y-axis (vertical axis) When you’ve plotted all the points, you will have a…
Price Ceiling
…situation by rationing supplies, decreasing production levels or lowering the quality of production, making the consumer pay extra for otherwise free elements of the good (features, options, etc.), and more….
Profit Maximization Rule
…number of flights, and therefore are irrelevant to that decision. Limitations of the Profit Maximization Rule (MC = MR) 1. Real World Data In the real world, it is not…
Ceteris Paribus
…outcome. However, in the real world, it is not possible to assume everything else will remain constant because we can’t isolate other variables. Those other variables will change. Ceteris Paribus…
The Demographic Transition Model
…Source: https://ourworldindata.org/world-population-growth Limitations of the Demographic Transition Model 1. Limited Predictive Capacity The demographic transition model is a highly useful model for making educated guesses about how populations are likely…
Introduction to Demand
…price. The Demand Curve The graph above shows a movement along the curve, which illustrates how price (P)affects the quantity demanded (QD). At Price P2 the QD is Q2. When…
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….
Seasonal Unemployment
…September 2018 (source) Minnesota: 3.1 percent in February 2019 (source) Kansas: 3.3 percent in July 2019 (source) Missouri: 3.6 percent as of June 2018 (source) Hawaii: 6.4 percent in 2010…
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 Easterlin Paradox
…and detractors “omit available data, overlook problems of data comparability, err in the measurement of economic growth, or, most importantly, fail to focus on long-term rather than short-term growth rates.”…
Average Variable Cost
…Additionally, for any firm, the short-term total costs (TC) can be classified as either fixed costs (FC) or variable costs (VC). This is represented by this formula: TC = FC…
Positive Externalities
…governments can use tax revenue to subsidize (or even make completely free) things like college education, thereby encouraging more youth to go to college. In this example, the positive externality…
Aggregate Demand and Aggregate Supply Equilibrium
…if the government increases government spending, then it would shift Aggregate Demand (AD) to the right which would increase inflation, growth (real GDP), and employment. There are differences in two…
Availability Bias
…culture, society, and more. Behavioral economics is dominated by the central concepts of: heuristics (people’s mental shortcuts) framing (how they filter things they view based on preassumptions and generalizations) market…
Deflation
…can’t fall below zero, the central bank can’t use expansionary fiscal policy. 5. Exports However, exports become more competitive abroad, so net exports increases. Example of Deflation in the United…
Contestable Market
…They realize that if they are too profitable, an entrant can quickly come in and take a significant share of that profit quickly. Typically, in a Monopoly Market Structure, there…
Budget Constraint
…Juice (PJuice) is $3 and bread (PBread) is $4. Meanwhile, the consumer has a total of $36 to spend (Income) on these two products. Additionally, the amount spent on juice…
Marginal Propensity to Consume
…a bonus, then his total income will be $110,000. The change in income (∆Y) = New Income – Old Income = $110,000-$100,000 = $10,000 Let’s say that he previously spent…
Financial Instruments
…are short-term and their maturity is usually less than 1 year For example, Commercial paper, treasury bills (federal govt. debt), short-term municipal debt, re-purchase agreements (repos), euro dollars. 2. Bonds…
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…
Types of Taxes
…in the U.S., such as Colorado, Utah, and Michigan, impose a proportional income tax for individuals. Another example of proportional taxation is the U.S. sales tax, as all consumers pay…
The Decoy Effect
…other option, it is inferior in some respects and superior in others. In other words, it is completely dominated by (i.e., inferior to) one option and only partially dominated by…
Total Revenue
…total revenue. The equation for that looks like this: Profit = TR – TC Relationship between “P” and “Q” In a perfectly competitive market, P is a constant, and Q…
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 Substitution Effect
…consumers and producers. Substitution Effect Example Let’s say you buy apple juice at $5 per 16-ounce bottle and orange juice at $2.50 per 16-ounce bottle. One bottle of apple juice…
Proportional Tax
…levy no sales tax at all). In addition, some U.S. states impose a proportional income tax for all residents; these states include Utah, Massachusetts, Illinois, Colorado, Pennsylvania, Indiana, and Michigan….
Cost-Push Inflation
…the volume of production. An increase in the Aggregate Demand curve causes Demand-Pull inflation. An interaction of cost-push inflation and demand-pull inflation results in the Wage Price Spiral. The wage-price…
Introduction to Externalities
…on products with negative externalities. Education and regulation are also ways of controlling the quantity consumed and produced. B. Private Solutions Moral Codes Moral codes guide individuals’ behavior. For example:…
The Pigou Effect
…not enough in not specifying a link from “real balances” to current consumption. He stated that the inclusion of such a “wealth effect” would make the economy more ‘self-correcting’ to…
Exceptions to the Law of Demand
…or service rises as the price falls, ceteris paribus (or with all other things being equal). Therefore, the Law of Demand is an inverse relationship between price and quantity demanded….
The Coase Theorem
…Liable1) Pay Coffee Shop $5/pound 1) Suffer from smell $5/pound 2) Install Air Cleaner$8/pound 2) Pay Fish Market for Scrubber $8/pound 3) Fish Market Moves $10/pound 3) Pay Fish Market…
Marginal Rate of Substitution
…Good X for Good Y (MRSxy) = ∆Y/ ∆X (which is just the slope of the indifference curve). The Principle of Diminishing Marginal Rate of Substitution The MRS of Good…
Inferior Good
…increase (e.g. organic food, cars, or name-brand products). Inferior and normal goods are in a relationship with one another—in other words, inferior goods exist when demand for alternatives to a…
Regulatory Capture
…projects for the private sector. The case of Bernie Madoff: The Security and Exchange Commission (SEC) in the U.S. had been alerted that Madoff’s financial statements were inconsistent but did…