Browsing Category

Microeconomics

Deadweight Loss

A deadweight loss is a cost to society as a whole that is generated by an economically inefficient allocation of resources within the market.A deadweight loss arises at times when supply and demand--the two most fundamental forces driving the economy--are not balanced.What is a Deadweight Loss? When supply and demand not balanced by…
Read More...

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…
Read More...

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…
Read More...

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…
Read More...

Price Elasticity of Demand

Price Elasticity of Demand (PED) is defined as the responsiveness of quantity demanded to a change in price. The demand for a product can be elastic or inelastic, depending on the rate of change in the demand with respect to the change in the price.What does Price Elasticity mean? Demand is said to be elastic demand has a greater…
Read More...

Supply and Demand

The result of the interaction between consumers and producers in a competitive market determines Supply and Demand equilibrium, price and quantity. Market forces tend to drop the price if quantity supplied exceeds quantity demanded and prices rise if quantity demanded exceeds quantity supplied. This movement continues until there are no more…
Read More...