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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Trade Barriers

No country however rich or large can make everything it needs or has all the resources it requires for its manufacturing industries. Yes, some countries are against free trade. They believe that free trade is bad for their economies and hurts growth and employment. So, what are the arguments used to impose trade barriers? International trade…
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Washington Consensus

The Washington Consensus refers to a set of free-market economic policies supported prominent economic institutions such as the International Monetary Fund, the World Bank, and the U.S. Treasury. A British economist named John Williamson coined the term Washington Consensus in 1989. The ideas were intended to help developing countries that faced…
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Demand Pull Inflation

In an Aggregate Demand and Aggregate Supply diagram, an increase in the aggregate demand curve leads to an increase in the rate of inflation, i.e., when the aggregate demand for goods and services is greater than the aggregate supply. Demand Pull Inflation is defined as an increase in the rate of inflation caused by the Aggregate Demand curve. It…
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Biased Beliefs

As mentioned in the introduction to behavioral economics, biased beliefs are beliefs affected by context at the formation of the belief. The example presented in the introduction is simple: a person who is hungry today expects to have a similar hunger level a day or more in the future (which is likely untrue). At that moment, they choose a filling…
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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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