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Microeconomics

Wealth Effect

The wealth effect is the economic phenomenon in which individuals spend more when stock prices increase and, as a result, equity portfolios are increasing in value. They do so because their sense of the reliability of their wealth is increasing. Thus, increases in consumer spending are directly correlated to increases in the value of stock…
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Regulatory Capture

Regulatory capture is a failure of normal government functions in which regulatory agencies become subservient to the industries they are meant to be monitoring and regulating. In these cases, the regulatory bodies end up furthering the (typically economically-motivated) goals and concerns of special interest groups, rather than the public--so the…
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Variable Costs

Costs can be divided quite simply into two basic categories: variable costs and fixed costs. Variable costs are those that vary with production levels. As the volume of production increases, these costs increase; likewise, as the volume of production decreases, variable costs also decrease. This is in contrast to fixed costs, which exist…
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Economies of Scale

An economy of scale is achieved when increasing the scale of production decreases long-term average costs. In other words, the cost of production per unit decreases as a company produces more units. Reducing the cost per unit of production is the most significant advantage created by economies of scale. For example, if we are producing a video…
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Cornucopia

The term cornucopia has its roots in Greek mythology. Cornucopia translates to the "horn of plenty", which magically supplied its owners with endless food and drink. Thus the cornucopians are sometimes known as "boomsters", and their philosophic opponents—Malthus and his school—are called "doomsters" or "doomers." Theory of Cornucopia in Economics…
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Monopsony Market Structure

A monopsony is a situation of the market wherein only one buyer exists in a particular area, typically along with many sellers. These sellers end up competing for the buyer’s purchases by lowering their prices. In the case of both monopsony and the much more well-known situation of monopoly, market conditions are imperfect. However, monopolies…
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