Marginal Analysis

In the field of economics, marginal analysis entails examination of the final or next unit of cost or of consumption. It involves cost-benefit analysis of business decisions—that is, understanding whether a particular decision provides enough benefits to be worth the cost of that decision. To give a straightforward marginal analysis definition, it…
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Marginal Utility

In general, utility measures the satisfaction received through consumption of a good/service. While the total utility is all of the satisfaction derived from some amount of consumption of a good/service, marginal utility specifically describes the change in satisfaction (that is, the additional satisfaction) created through consumption of one extra…
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Price Floor

A price floor or a minimum price is a regulatory tool used by the government. More specifically, it is defined as an intervention to raise market prices if the government feels the price is too low. In this case, since the new price is higher, the producers benefit. For a price floor to be effective, the minimum price has to be higher than the…
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Price Ceiling

A price control is instituted when the government feels the current equilibrium price is unfair and intervenes and adjusts the market price. More specifically, a price ceiling (in other words, a maximum price) is put into effect when the government believes the price is too high and sets a maximum price that producers can charge; this price must…
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Average Variable Cost

In the field of economics, the term “average variable cost” describes the variable cost for each unit. Variable costs are those that vary with changes in output. Examples of variable costs, otherwise known as direct costs, include some forms of labor costs, raw materials, fuel, etc. This is in contrast to fixed costs, or overheads, which are not…
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Discretionary Fiscal Policy

Discretionary fiscal policy refers to government policy that alters government spending or taxes. Its purpose is to expand or shrink the economy as needed. For instance, when the government cut the VAT in 2009, this produced a boost in spending. The output is determined by the level of aggregate demand (AD), so a discretionary fiscal policy…
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