Category: Economics
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Types of Indifference Curve || Microeconomics
The Indifference curve shows combinations of food and clothing that yield equal satisfaction and among which the consumer is indifferent. In the diagram below, point ‘g’ is more preferred than point ‘h’. The slope of tangent ‘T’ gives the marginal rate of substitution at point ‘b’. Moving down the curve from ‘b’ to ‘f’, the…
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Theory of Production || Stages of Production || Economics
Production : Production can be defined as the transformation of resources into products or the process whereby inputs are turned into outputs through technological innovations. The efficiency of this process depends upon 3 factors The proportion in which the various inputs are employed The absolute level of each input The productivity of each input at…
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Economic Demand : Definition, Determining Factors with special cases
Market is a place where the forces of demand interact with the forces of supply to determine the market clearing price and quantity transactions. Consumers are utility maximizers and producers/suppliers are profit maximizers. In equilibrium two equal and opposite forces are in harmony. Demand for a commodity in the market is determined by the following…
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Perfect Competition || Market Structure || Economics
A perfectly competitive market structure has the following 3 assumptions – Price Taker Product Homogeneity Free Entry & Exit Price Taker : When many firms compete in a market, each firm faces a significant number of direct competitors for its products. As each firm sells a very small portion of the total market output, its…
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Implicit, Explicit Costs, Accounting and Economic Costs – Overview with Example
Cost of any product can be defined as the expenditure that is needed in order to produce that product or make it usable for consumption purpose. Now, Cost Structure of a firm can be broadly categorized into two segments – Implicit costs and Explicit Costs. What is Explicit Cost ? Explicit costs are cash payments…
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Returns to Scale – Definition, Types with Example || Economics
In the long run with all the inputs variable, the firm must also consider the best way to increase output. One way to do so is to change the scale of operation by increasing all of the inputs to production in proportion. For example if it takes one man and one machine to produce 50…
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Income Effect vs Substitution Effect : Key Differences
In general, a fall in the price of a good has two effects – Consumers will tend to buy more of the good that has become cheaper and less of the good that has now become relatively more expensive. This response to a change in the relative prices of goods is called the substitution effect.…
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Price Discrimination : Two Part Tariff
Two part tariff is a form of pricing in which consumers are charged both an entry fee and a usage fee. It is a type of price discrimination and provides another means of extracting consumer surplus. It requires consumers to pay an upfront fee for the right to buy a product or avail a service.…
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Natural Monopoly
What is Natural Monopoly ? Natural monopoly emerges when natural interactions between market forces permits a single firm (its ownership may be single or joint) to produce or sell a particular commodity. The essential condition for a natural monopoly in the production of a commodity or a service is that its production involves huge fixed…
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Monopolistic Competition – Overview || Economics
What is Monopolistic Competition? Monopolistic Competition emerged as a concept when the theory of Perfect Competition and the theory of Monopoly failed to explain the existence of differentiated products in a competitive market set-up. Robinson and Chamberlin provide the theoretical foundation for Monopolistic Competition in the 1930s. There are 9 important features or assumptions of…