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Microeconomics

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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Equimarginal Principle

The equimarginal principle is an important idea in the economic subfield of managerial economics. It is otherwise known as the “equal marginal principle” or the “principle of maximum satisfaction.” The equimarginal principle states that consumers choose combinations of various goods in order to achieve maximum total utility. In other words,…
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Subsidies

Subsidies are defined as a form of support given to producers of a product that helps to reduce the cost of production. This has the intended effect of increasing production and consumption of that product. Goods that governments want to increase the use of are subsidized; these include important services and institutions like education and…
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Consumer Surplus

Consumer surplus is the area under the demand curve (see the graph below) that represents the difference between what a consumer is willing and able to pay for a product, and what the consumer actually ends up paying. Consumer surplus is positive when the price the consumer is willing to pay is more than the market price. How to Calculate…
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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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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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