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Basic Concepts Articles;

Consumer Surplus

Consumer surplus is a measure of the welfare that people gain from the consumption of goods and services, or a measure of the benefits they derive from the exchange of goods.

Positive and Normative Statements

Whenever you are reading articles on current affairs it is important to be able to distinguish where possible between objective and subjective statements.

Price Volatility in Markets

We often find that prices in markets rise and fall by large amounts over a short time period. They display a high level of volatility which directly affects both consumers and producers

Productivity

The American economist Paul Krugman once said that “productivity isn’t everything, but in the long run it is almost everything.”

Theory of Demand

Demand is defined as the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period.

Cross Price Elasticity of Demand

Very often, a change in the price of one product leads to a change in the demand for another, economists call this the cross-price effect and this is the focus of this chapter.

Efficiency

To economists, efficiency is a relationship between ends and means. When we call a situation inefficient, we are claiming that we could achieve the desired ends with less means, or that the means employed could produce more of the ends desired. Less and more in this context necessarily refer to less and more value. Thus, economic efficiency is measured not by the relationship between the physical quantities of ends and means, but by the relationship between the value of the ends and the value of the means.

Information

In the past two decades, an important strand of economic research, sometimes referred to as information economics, has explored the extent to which markets and other institutions process and convey information. Many of the problems of markets and other institutions result from costly information, and many of their features are responses to costly information.

Insurance

Insurance plays a central role in the functioning of modern economies. Life insurance offers protection against the economic impact of an untimely death; health insurance covers the sometimes extraordinary costs of medical care; and bank deposits are insured by the federal government. In each case a small premium is paid by the insured to receive benefits should an unlikely but high-cost event occur.

Liability

Until recently, property and liability insurance was a small cost of doing business. But the substantial expansion in what legally constitutes liability over the past thirty years has greatly increased the cost of liability insurance for personal injuries.

Marginalism

Adam Smith struggled with what came to be called the paradox of "value in use" versus "value in exchange." Water is necessary to existence and of enormous value in use. Diamonds are frivolous and clearly not essential.

Market drives excess cows and cubicles

A fourth of downtown St. Paul office space is vacant. That information, taken alone, might indicate a real estate cow market

Market Equilibrium Price

Equilibrium means a state of equality or a state of balance between market demand and supply. Without a shift in demand and/or supply there will be no change in market price.

Microeconomics

Until the so-called Keynesian revolution of the late thirties and forties, the two main parts of economic theory were typically labeled monetary theory and price theory. Today, the corresponding dichotomy is between macroeconomics and microeconomics. The motivating force for the change came from the macro side, with modern macroeconomics being far more explicit than old-fashioned monetary theory about fluctuations in income and employment (as well as the price level). In contrast, no revolution separates today's microeconomics from old-fashioned price theory; one evolved from the other naturally and without significant controversy.

Monopoly status isn't everything

When you hear that some company or industry is abusing the public with high prices or unconscionable profits, ask yourself the following: Is this a contestable market?

Natural Resources

The earth's natural resources are finite, which means that if we use them continuously, we will eventually exhaust them.

Opportunity Cost

When economists refer to the "opportunity cost" of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can't spend the money on something else.

Price Elasticity of Supply

Price elasticity of supply measures the relationship between change in quantity supplied and a change in price.

Prisoners' Dilemma

The prisoners' dilemma is the best-known game of strategy in social science. It helps us understand what governs the balance between cooperation and competition in business, in politics, and in social settings.

Production Possibility Frontier

A production possibility frontier (PPF) is a curve or a boundary which shows the combinations of two or more goods and services that can be produced whilst using all of the available factor resources efficiently.

What are Capital Goods?

In the economic realm, "capital goods" is a specialized term which refers to real objects owned by individuals, organizations, or governments to be used in the production of other goods or commodities.

What is a Monopoly?

"Monopoly" is a term from economics that refers to a situation where only a single company is providing an irreplaceable good or service.

What is Inventory?

Inventory is the total amount of goods and/or materials contained in a store or factory at any given time.

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