A proportional tax is a kind of income tax wherein all taxpayers are taxed at the same percentage rate, no matter how high or low their income. A proportional tax system means that everyone experiences the same tax rate, whether low, middle, or high-income.
A progressive tax involves taxing lower-income citizens at a lower rate than higher-income citizens. As a member of a society with a progressive tax, the tax rate you are placed in is based on your income—whether you can afford to pay a certain tax level. Higher-income earners have a greater percentage of their wealth and income taxed.
Ceteris Paribus is a Latin phrase which literally translates to “holding other things constant”. Petrus Olivi was the first person to use the term with an economic context in 1295. In economics, this phrase is used to mean “all else being equal.”
Income Elasticity of Demand (YED) is defined as the responsiveness of demand when a consumer’s income changes. It is defined as the ratio of the change in quantity demanded over the change in income.
Cross Price Elasticity of Demand (XED) measures the responsiveness of demand for one good to the change in the price of another good. It is the ratio of the percentage change in quantity demanded of Good X to the percentage change in the price of Good Y.
The best way to show a country’s available resources, along with the maximum two goods produced from those resources, is by calculating the production possibilities frontier (PPF).
The crowding out effect is a prominent economic theory stating that increasing public sector spending has the effect of decreasing spending in the private sector. In other words, according to this theory, government spending may not succeed in increasing aggregate demand because private sector spending decreases as a result and in proportion to said government spending.
Foreign aid is defined as the voluntary transfer of resources from one country to another country. This transfer includes any flow of capital to developing countries. A developing country usually does not have a robust industrial base and is characterized by a low Human Development Index (HDI).
The circular flow of income is illustrated in the circular flow model of the economy, which is one of the most significant basic models within economics. This model shows how different units in an economy interact, breaking things down in a highly simplified manner.
Availability bias describes the way in which human beings are biased toward judging events’ likelihood/frequency based on how easily their minds can conjure up examples of the event occurring in the past.
There are four types of trade barriers that can be implemented by countries. They are Voluntary Export Restraints, Regulatory Barriers, Anti-Dumping Duties, and Subsidies.
A country’s economic development is usually indicated by an increase in citizens’ quality of life. ‘Quality of life’ is often measured using the Human Development Index, which is an economic model that considers intrinsic personal factors not considered in economic growth, such as literacy rates, life expectancy, and poverty rates.
Say’s Law is short for “Say’s Law of Markets,” which states that the production of goods produces its own demand. In other words, supply creates its own demand.
The determinants of demand are factors that cause fluctuations in the economic demand for a product or a service. A shift in the demand curve occurs when the curve moves from D to D₁, which can lead to a change in the quantity demanded and the price. There are six determinants of demand.
Aggregate demand (AD) is the total demand for final goods and services in a given economy at a given time and price level.
When consumers’ income limits their consumption behaviors, this is known as a budget constraint. In other words, it’s all of the many combinations of goods/services that consumers are able to purchase in light of their particular income as well as the current prices of these particular goods/services.
The Multiplier Effect is defined as the change in income to the permanent change in the flow of expenditure that caused it. In other words, the multiplier effect refers to the increase in final income arising from any new injections.
The money multiplier describes how an initial deposit leads to a greater final increase in the total money supply. Also known as “monetary multiplier,” it represents the largest degree to which the money supply is influenced by changes in the quantity of deposits. It identifies the ratio of decrease and/or increase in the money supply in relation to the commensurate decrease and/or increase in deposits.
The Profit Maximization Rule states that if a firm chooses to maximize its profits, it must choose that level of output where Marginal Cost (MC) is equal to Marginal Revenue (MR) and the Marginal Cost curve is rising. In other words, it must produce at a level where MC = MR.
The term Derived Demand refers to the demand for a good or service that itself arises out of the demand for a related or intermediate good or service. Thus the dependent demand often has a notable effect on the market price of the derived good.
In a Monopoly Market Structure, there is only one firm prevailing in a particular industry. However, from a regulatory view, monopoly power exists when a single firm controls 25% or more of a particular market.
The Substitution Effect is the effect of a change in the relative prices of goods on consumption patterns. It is the economic idea that as either prices rise or income decreases, consumers substitute cheaper alternatives for more expensive goods
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 portfolios.
Relative poverty is the level of poverty which changes depending on the context–it’s relative to the economic context in which it exists. Relative poverty is present when a household income is lower than the median income in a particular country.
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.
The Fisher Effect demonstrates the connection between real interest rates, nominal interest rates, and the rate of inflation. According to the Fisher Effect, the real interest rate is equal to the nominal interest rate minus the expected rate of inflation.
A duopoly is a kind of oligopoly: a market dominated by a small number of firms. In the case of a duopoly, a particular market or industry is dominated by just two firms.
Costs can be divided quite simply into two basic categories: variable costs and fixed costs. Variable costs are those that vary with production levels.
A cornucopian is a futurist who believes that continued progress and provision of material items for mankind can be met by similarly continued advances in technology.
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.
The Glass-Steagall Act (1933) separated depository institutions aka retail banks from investment banks and limited securities, activities, and affiliations within commercial banks and securities firms.
Peak Oil is a theoretical point in time after which the production of oil is expected to decline permanently because the industry has reached the maximum rate of extraction.
The Laffer Curve was conceptualized for modern economies by Arthur Laffer during a meeting in which he argued against President Gerald Ford’s tax increase. The Laffer Curve shows the relationship between tax revenue collected by the government and tax rates paid by citizens.
The Consumer Price Index (CPI) is usually represented by a basket of goods or products. It measures the average change in the price of this basket of goods over a defined period of time. Economists and Policymakers widely use the Consumer Price Index as a measurement for the inflation rate.
A normative statement carries judgment. Normative statements are opinions. They are subjective statements.
The Easterlin Paradox was theorized by Professor Richard Easterlin, who is an Economics Professor at the University of Southern California. In his paper titled, “Does Economic Growth Improve the Human Lot? Some Empirical Evidence”, he concluded that a country’s level of economic development and level of happiness are not connected.