Producer Surplus

The producer surplus is the area under the supply curve (see the graph below) that represents the difference between what a producer is willing and able to accept for selling a product, on the one hand, and what the producer can actually sell it for, on the other hand. That difference is the amount that the producer receives as a result of selling…
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Nominal Interest Rate

The nominal interest rate is the interest rate that has not yet had inflation accounted for in the overall number. This interest rate will be quoted on things like loans, bonds, and the like. It is the rate “as advertised,” which will not necessarily reflect the reality of how the interest rate will actually manifest as influenced by inflation,…
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Real Interest Rate

The real interest rate is found by adjusting a standard interest rate so that the effects of inflation are not present. This allows you to understand the interest rate better by revealing the true yield of to lenders and investors as well as the true cost of funds for borrowers. In other words, it shows the true rate of loans and bonds. Calculating…
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Introduction to Supply

Supply is quite a straightforward concept, understood by non-economists and economists alike. The term “supply” refers to the amount of a good or service that a firm is willing and able to offer for sale for a given period of time. For a slightly unexpected example, consider the labor market: the supply of labor is the amount of time per week,…
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The Lorenz Curve

One of the five major and common macroeconomic goals of most governments is the equitable (fair) distribution of income, which is a crucial element of a functioning democratic society. With regard to this macroeconomic goal, the distribution of income or wealth in an economy is represented by a Lorenz curve. (Note that income and wealth are…
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The Gini Coefficient

The Gini coefficient, or Gini index, is derived from the Lorenz curve, and like the Lorenz curve it measures the degree of economic equality across a given population, and simplifies this reality into a single number. How Does the Gini Coefficient Work? The Gini coefficient can vary from 0 (perfect equality, also represented as 0%) to 1 (perfect…
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