Microeconomics

division of output between factories
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Division of Output between Factories

The division of output between two factories is a case in which you have two factories; an older factory with a higher Marginal Cost and a newer factory with a lower Marginal Cost. To determine how much each factory should produce, you have to draw a horizontal Price/Demand line across the two graphs (of the old and new factory)....
the decoy effect
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The Decoy Effect

The decoy effect or asymmetric dominance effect is the phenomenon whereby consumers will tend to have a specific change in preferences between two options when also presented with a third option that is asymmetrically dominated. The Decoy Effect An option is asymmetrically dominated when it is inferior in all respects to one option. However, in comparison to the...
decision fatigue
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Decision Fatigue

Decision fatigue refers to the deteriorating quality of decisions made by an individual, after continuously making decisions. It is now understood as one of the causes of irrational trade-offs in decision-making. Decision fatigue may also lead to consumers making poor choices with their purchases. Effects of Decision Fatigue 1. Reduced ability to make trade-offs A...
the coase theorem
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The Coase Theorem

The Coase Theorem states "that when there are conflicting property right, bargaining between the parties involved will lead to an efficient outcome regardless of which party is ultimately awarded the property rights, as long as the transaction costs associated with bargaining are negligible." The cost for lawsuit would be the same for the two parties in...
Price Floor Effects
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Price Control – Price Floor

A Price Floor or a minimum price is 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. Ex: farmers - many governments intervene by establishing price floors to ensure that farmers make enough money. The most common price floor...
indirect taxes
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Indirect Taxes

An indirect tax is a tax applied on the manufacture or sale of goods and services. There are two types of indirect taxes - ad valorem tax and specific tax. A specific tax is imposed on each unit, i.e. $0.50 on a pack of cigarettes, while an ad valorem tax (or percentage tax) is a percentage of the...

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