Quotas

A quota, which is a type of trade barrier, is a restriction on the quantity that can be imported into a country. Quotas and Tariffs are effectively the same except that governments collect revenue from tariffs while exporting firms can collect extra revenue from quotas (as seen below in box 3). A quota increases the firm's export revenues.…
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Marginal Revenue

Marginal Revenue (MR) is the increase in the Total Revenue (TR) that is gained when the firm sells one additional (marginal) unit of that product. In other words, MR is the revenue obtained from the last unit sold.Marginal Revenue can remain uniform at a particular level of output. However, the MR will eventually slow down as the production…
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Returns to Scale

Returns to scale describes the rate of increase in production relative to the associated increase in the factors of production in the long run. At this point, all factors of production are variable (not fixed) and can scale. Therefore, the scale of production can be changed by changing the quantity of all factors of production.The difference…
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The Decoy Effect

The Decoy Effect or the Asymmetric Dominance Effect is a cognitive bias in which consumers will tend to have a specific change in preferences between two options when also presented with a third option that is asymmetrically dominated. Simply put when there is a third strategically important choice, aka the decoy, then the consumer is more…
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Decisions Involving Uncertainty

Decision-making under uncertainty is a complex topic because all decisions are made with some degree of uncertainty. But there are specific scenarios in which economic experiments have shown that some people make decisions deviating from expected utility theory defined by the Von Neumann-Morgenstern theorem. While the experiments are conducted…
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Marginal Propensity to Consume

The marginal propensity to consume (MPC) is the increase in consumer spending due to an increase in income. This can be expressed as ∆C/∆Y, which is a change in consumption over the change in income.For example, if a person earns an extra $10, and then spends $7.50 from the $10, then the marginal propensity to consume will be $7.5/10 = 0.75.…
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