What is Economics?
…ideas about production, which form the basis for the political system of communism The Austrian School, an approach centered around stock market price mechanisms and pricing based on the utility…
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Inferior Good
…worst economic disaster since the Great Depression of 1929.” Can you guess which two stocks thrived? McDonalds and Walmart. Both companies position themselves as cost options. Examples of Inferior Good…
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…
Efficient Market Hypothesis
…systemically beat the market. This means it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. There are three forms of market efficiency. Forms of…
Harrod Domar Model
…the savings ratio will be difficult. 5. Financial System In an undeveloped financial system, the availability of increased savings may not translate into extra funds for investment. The country may…
The Environmental Kuznets Curve
…levels rise. As Economists conduct more studies, we will be able to reach a better understanding of what changes we can make to benefit both the environment and the economy….
Relative Poverty
…depends not only on income but also on access to social services.” Understanding the Cycle of Poverty There is extensive statistical evidence showing that those who are born into poverty…
Say’s Law
…flexibly consequence-free—workers will undermine efforts to lower their wages. High levels of savings (when people and businesses hoard money) mean lower consumption. They may do so due to low economic…
Availability Bias
…known as the “availability heuristic.” Availability Bias Examples Here are several common and notable examples of availability bias, to help you better understand how it manifests in everyday life: 1….
Marginal Utility
…derived from consumption, not just that of an added unit.) Economists use the idea of marginal utility to understand the amount of a good or service that consumers are likely…
Marginal Cost
…decision-making in that it allows firms to understand what level of production will allow them to have economies of scale. Economies of scale involve the most optimally efficient and productive…
Consumer Surplus
Consumer Surplus is the area under the demand curve (see the graph below) that represents the difference between what a consumer is willing and able to pay for a product,…
Supply and Demand
The result of the interaction between consumers and producers in a competitive market determines Supply and Demand equilibrium, price and quantity. Market forces tend to drop the price if the…
Theory of Production: Cost Theory
…only equal to the total cost. The company has crossed the losses zone and is about to enter the zero profit zone. The output at which total revenue becomes equal…
The Phillips Curve
…long run, expectations are adjusted, and there is no trade-off between unemployment and inflation. The Natural Rate of Unemployment is compatible with any rate of inflation, as long as the…
Equitable Distribution of Income
…percent tower stunningly higher. They average over 39 times more income than the bottom 90 percent. But that gap pales in comparison to the divide between the nation’s top 0.1…
Laffer Curve
…that lower tax rates mean businesses and consumers will spend more and boost the economy. Companies will invest and hire more workers and consumers will use the extra disposable income…
Exchange Rate
…pegged at a certain value to another currency, or a basket of other currencies or to the value of a commodity like gold. The rate between the currency and its…
Interest Rate Risk
…risk-less asset since investors demand compensation for taking on higher risk. Interest Rate Risk Structure Highly rated investment-grade bonds are those with the lowest risk of default. Junk Bonds have…
Durable & Non-Durable Goods
…This results in the monopolist charging the competitive price. Solutions Destroy the leftover or in this example, donate the land ‘Break the mold’, limits the reproduction of the durable good…
Risk Strategies for Farmers in Developing Economies
…Asymmetric Information The insurance company won’t have enough information on the farmer about things he could have done to minimize loss. This lack of information is called asymmetric information. Within…
Bill of Exchange
A bill of exchange is a specialized type of international draft used to expedite foreign money payments in many types of international transactions. In addition, a draft is commonly used…
Bimetallism
…coinage because the amount is infinite, even if the government charges a fee. The combination of these conditions distinguishes bimetallism from a limping standard, where both gold and silver are…
Inheritance Tax
…an income tax). Inheritance Tax Explained Since there is a difference between an inheritance tax and an estate tax, most people commonly refer to them as death taxes. Inheritance Tax…
Marginal Propensity to Consume
…the Marginal Propensity to Consume formula to come to the same answer. For example, if an individual is making $100,000 a year and they get an increase of $10,000 as…
The Easterlin Paradox
…constant or even decreases. In fact, Professor Easterlin also revisited his previous theory in 2017 in a paper titled Paradox Lost? He found that the “long-term trends in growth rates…