Allocative Efficiency

Allocative efficiency is the level of output where the price of a good or service is equal to the marginal cost of production. Allocative efficiency has been achieved when goods and/or services have been distributed in an optimal manner, and when their marginal cost and marginal utility are equal.What is Allocative Efficiency? The term…
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Laffer Curve

The Laffer Curve was conceptualized for modern economies by Arthur Laffer during a meeting in which he argued against President Gerald Ford's tax increase. The Laffer Curve shows the relationship between tax revenue collected by the government and tax rates paid by citizens. The tax rates depicted on a Laffer Curve range from 0% to 100%.The…
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Natural Monopolies

Most of us are well-acquainted with the idea of a monopoly: when there is only one firm prevailing in a particular industry. However, from a regulatory view, monopoly power exists when a single firm controls 25% or more of a particular market. For example, De Beers is known to have a monopoly in the diamond industry. Natural monopolies are a…
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Subsidies

Subsidies defined as a form of support given to producers of a product that help reduce the cost of production, which results in an increase in production and consumption of that product. Goods that governments want to increase the consumption of are subsidized; such as education or healthcare. Government subsidies are usually given in the form of…
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Consumer Price Index (CPI)

The Consumer Price Index (CPI) is usually represented by a basket of goods or products. It measures the average change in the price of this basket of goods over a defined period of time. Economists and Policymakers widely use the Consumer Price Index as a measurement for the inflation rate. The CPI is also used as a deflator to convert other…
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Absolute Advantage

According to Adam Smith, who is regarded as the father of modern economics), countries should only produce goods that they have an absolute advantage in. A country is said to have an absolute advantage if the country can produce a good at a lower cost than another. Furthermore, this means that fewer resources are needed to provide the same…
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