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Microeconomics

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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The Principal Agent Problem

The Principal Agent Problem occurs when one person (the agent) is allowed to make decisions on the behalf of another person (the principal). In this situation, there are issues of moral hazard and conflicts of interest. Politicians and voters is an example of the Principal Agent Problem.
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Theory of Contestable Markets

The Theory of Contestable Markets states that when barriers to entry into a market are weak or low or in some cases non-existent, and assuming that all entrants have equal access to technology, there is a constant threat of potential entry. This continuous risk increases competition in the market since there is essentially no cost to enter or exit…
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