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Microeconomics

Economies of Scale

Economies of Scale is defined as a fall in the long run average costs because of an increased scale of production. This basically means the cost of production per unit reduces as you produce more units. Reducing the cost per unit of production is the most significant advantage of achieving economies of scale. For example, if we are producing a…
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Price Elasticity of Demand

Price Elasticity of Demand (PED) is defined as the responsiveness of quantity demanded to a change in price. It is also the slope of the demand curve. We calculate the slope as "rise over run." For example, if I increase the price of a phone from $300 to $500, then how much can I expect my demand to fall? This answer will depend on various…
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Marginal Rate of Substitution

The Marginal Rate of Substitution (MRS) is defined as the rate at which a consumer is ready to exchange a number of units good X for one more of good Y at the same level of utility. The Marginal Rate of Substitution is used to analyze the indifference curve. This is because the slope of an indifference curve is the MRS. Marginal Rate of…
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Indifference Curve

An indifference curve depicts a line representing all the combinations of two goods that consumers place equal value. That is to say, they would be indifferent to either good. The consumer has no preference for either combination of goods on the same line because they are understood to provide the same level of utility to the consumer.…
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Inheritance Tax

An Inheritance Tax is a tax paid by the individual who inherits a deceased person's property or money. Keep in mind that an inheritance tax is different from an estate tax. An estate tax is a tax imposed on a deceased individual's assets. There are two other types of taxes as well: indirect taxes and direct taxes (also known as an income tax).…
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Exceptions to the Law of Demand

There are two exceptions to the Law of Demand. Giffen and Veblen goods are exceptions to the Law of Demand. However, they are extreme cases and can be quite difficult to prove. But economists generally agree that there are rare cases where the Law of Demand is violated. The Law of Demand states that the quantity demanded for a good or service…
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