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item list element: Marginal Revenue
item list element: Government intervention helps women. We need more of it
item list element: Scarcity and Choice
item list element: Trade Barriers
item list element: Dress Code for Economic Conferences: What to Wear and What to Avoid
item list element: The US Economy is Failing Young People
item list element: Price Elasticity of Supply
item list element: Oligopoly
item list element: Price Elasticity of Demand
item list element: Economies of Scale
item list element: Income Elasticity of Demand
item list element: Adverse Selection
item list element: Asymmetric Information
item list element: Ceteris Paribus
item list element: Deadweight Loss
item list element: Law of Diminishing Marginal Returns
item list element: Demand Curve
item list element: Supply and Demand
item list element: Opportunity Cost
item list element: Cross Elasticity of Demand
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Marginal Revenue
type: CreativeWork
title: Marginal Revenue
description: Whenever a firm increases the number of units it sells, this will affect the firm's revenue, because the quantity sold is higher and revenue is equal to the number of units sold times the price they were sold. In a perfectly competitive market, each firm acts as a price taker and can sell as much as it wants to at the market price. This implies that the marginal revenue in a perfectly competitive market is equal to the market price. For example, if a firm is selling orange juice at €2 per glass (and it can sell as many glasses as it wants to at this price), then any additional glass of orange juice that the firm sells increases total revenue (TR) by 2 and thus, marginal revenue is equal to 2. That is, if the firm increases quantity from 10 to 11 glasses, total revenue increases from 20 to 22 and the change in total revenue is equal to 2: MR = TR (11 glasses) – TR (10 glasses) = 11 * 2 – 10 * 2 = 22 – 20 = 2. If the market is not perfectly competitive, the marginal revenue is not necessarily equal to the market price. Consider a monopolist who faces the entire market demand. In order to sell more units, the monopolist would have to decrease the price for all units (not only for the additional unit that it wants to sell). This means that total revenue could increase by less than the market price if the next unit lowers the sales price by too much. To be more precise, selling one more unit will increase total revenue by the price at which the good is sold minus the revenue that the monopolist loses from selling all units at a lower price. Total revenue is a quadratic function which is maximized at the point where marginal revenue is equal to zero (at quantity q *). Mathematically the marginal revenue is the derivative of total revenue with respect to quantity, i.e. \begin{equation*} \mathit{MR} = \frac{\mathit{dTR}}{\mathit{dq}} = \mathit{p(q)} + \mathit{q}*\frac{\partial\mathit{p(q)}}{\partial\mathit{q}} \end{equation*} where TR is total revenue <m:omath><m:r>TR </m:r…
disambiguating description: Marginal revenue (MR) measures the change in total revenue that occurs when a firm increases output by one unit, i.e., it is the extra income (or revenue) generated by selling one additional unit.
date posted: 2020-02-11T13:14:54Z
date modified: 2023-10-05T17:30:27Z
language: en
keywords: Marginal revenue
keywords: Mirjam Sarah Salish
type: terms
disciplines: microeconomics
disciplines: economics
disciplines: financialeconomics
disciplines: socialscience
discipline labels: Microeconomics (JEL D)
discipline labels: Economics
discipline labels: Financial Economics (JEL G)
discipline labels: Economics and Social Sciences

Government intervention helps women. We need more of it
type: Article
title: Government intervention helps women. We need more of it
description: These aren’t easy questions, the rancorous nature of current American politics evidence of their polarising nature. Nevertheless, as social expectations are raised, they require constant reappraisal, for certain injustices necessitate government intervention. Research has shown that gender equality, especially, is reliant on an active, intervening state to provide things the market has historically failed to offer and that are vital to progress - namely parental leave and childcare. The case for placing both in the custody of the state is compelling, and ultimately, if gender inequality is to be taken seriously, necessary. Here’s why. Historic prejudice The labour market has rarely been a friend to women. Reflecting regressive social mores, it has, for most of its history, viewed the female condition as unsuitable for the dog-eat-dog world of work - too sensitive, too fragile - while pregnancy itself carried great disruptive potential, an ever-present, ticking time-bomb. These sentiments continue to find expression in the hiring process - men preferred to women in a phenomenon economists call ‘statistical discrimination’. The preference presumes that women are more likely to quit work on account of starting a family. And being ‘more likely’ to quit, they are paid less - globally women earn 24% less than men according to Oxfam - as businesses safeguard themselves against future losses. In turn, unfair remuneration makes women actually more likely to quit, and the circle is complete. A similar logic makes women less likely to get promoted, explaining their relatively few numbers in positions of high authority. The material ramifications of this are dire, to say nothing of the ethical injustice. UN unemployment and poverty statistics are all skewed unfavorably towards women, and mothers have it particularly bad. Despite progress having been made - 39% of the global workforce are women and there’s been a haphazard re-examination of caregiving roles in society - the rest…
disambiguating description: The jostling between market and state, and the territory that each occupies, lies at the heart of political discourse. It's the major fault line around which political parties form and debates rage. Despite their uneasy relationship, between them they generally make available all that we need, be it food, a home, healthcare, employment, or education, at varying - and often questionable - quality and cost. The demarcation between the two, rarely ever static, differs widely across states, and speaks to the values of the society in question. What, for instance, can be said of a country whose privatised higher education is financially off limits to its poorer citizens? Is it right to leave the market responsible for people’s health? And what of the provision of childcare?
date posted: 2020-02-04T14:01:24Z
date modified: 2026-07-07T10:12:16Z
employment type: onsite
language: en
keywords: inequality
keywords: gender
keywords: William Pearse
type: blog
disciplines: politics
disciplines: publiceconomicspolicy
disciplines: economics
disciplines: socialscience
disciplines: labordemographiceconomics
disciplines: healtheducationwelfareeconomics
discipline labels: Politics
discipline labels: Public Economics & Economic Policy (JEL H)
discipline labels: Economics
discipline labels: Economics and Social Sciences
discipline labels: Labor and Demographic Economics (JEL J)
discipline labels: Health, Education, and Welfare (JEL I)

Scarcity and Choice
type: CreativeWork
title: Scarcity and Choice
description: Some resources are plentiful while others are rare. We tend to think less about the air that we breathe than about how we are going to spend our time on any given day. That is because breathable air is in apparent abundance while the number of hours in a day is clearly limited. Our decision to breathe is not a conscious one and is thus somewhat uninteresting for an economist. On the other hand, a whole branch of economics exists to understand and explain our choices of time allocation: how many hours we choose to work and how many hours we choose to play are of fundamental importance to the labor market. It is not just people’s time but also their skills that are in limited supply. Economists are typically concerned with the efficiency of any allocation: how can the most be made of such scarce resources? While mainstream economics focuses on the preferences and decisions of individuals in society, evaluating the fair allocation of scarce resources requires aggregation of preferences in order to judge the utility of an allocation to society as a whole (see welfare economics). Thus, not only the efficiency of an allocation but also its equity, or distributive fairness, is relevant to the study of scarcity and choice. Indeed, the issue of equity is central to the debate on free-market versus planned economies. The scarcity of a resource in a particular context can be quantified and hence judged objectively. Traditionally, economists have also studied people’s choices over scarce resources as though they were taken through simple, objective and rational calculation. Of course, people’s decision-making is not purely rational; it is affected by emotion too. The fast-developing subfield of behavioral economics applies insights from human psychology to enrich economists’ understanding of choice at a more subjective level. <11an>limit:3;categories:Master's Programs;disciplines:Economics</11an> The basics of supply and demand tell us that the price of a rare item will be high…
disambiguating description: Where there is scarcity, choices must be made! Scarcity refers to the finite nature and availability of resources while choice refers to people’s decisions about sharing and using those resources. The problem of scarcity and choice lies at the very heart of economics, which is the study of how individuals and society choose to allocate scarce resources.
date posted: 2020-02-10T09:30:33Z
date modified: 2022-04-04T10:35:51Z
employment type: onsite
language: en
keywords: scarcity and choice
keywords: Supply and choice
keywords: scarcity
keywords: Tom McKenzie
type: terms
disciplines: microeconomics
disciplines: economics
disciplines: socialscience
discipline labels: Microeconomics (JEL D)
discipline labels: Economics
discipline labels: Economics and Social Sciences

Trade Barriers
type: CreativeWork
title: Trade Barriers
description: The theory of comparative advantage states that as long as countries have access to resources in different proportions (i.e. at differing relative cost) then they will all gain from engaging in international trade with one another. To realize these gains from trade, they each need to simply devote resources to the industries where domestic production is most efficient and then trade to receive other goods that satisfy domestic demand. Seen in this light, limiting trade between economies results in a deadweight loss. Economists, ever in search of efficiency, therefore tend to agree that free trade agreements are a good thing and that trade barriers are to be avoided. Nevertheless, trade barriers are becoming commonplace around the globe as many governments take a protectionist stance to their economies. While countries as a whole do tend to gain from free trade, as more countries participate in the world economy, competition in production intensifies, leading to losses for certain groups within countries. Wages and jobs in particular industries can come under pressure. In theory, this loss of a less efficient industry at home can be ameliorated by retraining and reallocating people and jobs to more productive areas of the economy. Yet trade barriers can have a more immediate effect because retraining takes time. Trade barriers are hence favored by many citizens and politicians looking for a quick fix. Over time, this results in countries propping up inefficient domestic industries with subsidies and tariffs, creating yet more deadweight loss. <11an>limit:3;categories:Master's Programs;disciplines:Economics</11an> A prime example of this is the trade dispute that began in June 2018 between the US and China and their governments’ discussions regarding tariffs on imports. The decision by the British electorate to leave the European Union can also be explained in part by an aversion to the free movement of people; exiting the bloc effectively erects a non-tariff barrier …
disambiguating description: Trade barriers refer to the obstacles that are put in place by governments to limit free trade between national economies. Trade barriers are thus essentially interventions in markets that happen to operate internationally. Trade barriers include tariffs (taxes) on imports (and occasionally exports) and non-tariff barriers to trade such as import quotas, subsidies to domestic industry, embargoes on trade with particular countries (usually for geopolitical reasons), and licenses to import goods into the economy.
date posted: 2020-02-10T10:32:13Z
date modified: 2025-03-13T10:05:29Z
employment type: onsite
language: en
keywords: Trade barriers
keywords: subsidy
keywords: tariff
keywords: free trade
keywords: international trade
keywords: Tom McKenzie
type: terms
disciplines: microeconomics
disciplines: internationaleconomics
disciplines: publiceconomicspolicy
disciplines: economics
disciplines: macroeconomicsmonetary
disciplines: socialscience
disciplines: laweconomics
disciplines: industrialorganization
discipline labels: Microeconomics (JEL D)
discipline labels: International Economics (JEL F)
discipline labels: Public Economics & Economic Policy (JEL H)
discipline labels: Economics
discipline labels: Macroeconomics and Monetary Economics (JEL E)
discipline labels: Economics and Social Sciences
discipline labels: Law and Economics (JEL K)
discipline labels: Industrial Organization (JEL L)

Dress Code for Economic Conferences: What to Wear and What to Avoid
type: Article
title: Dress Code for Economic Conferences: What to Wear and What to Avoid
description: Having previously helped thousands of INOMICS users find the right economics conference for them, it seemed only polite to give some general guidelines about what’s appropriate to wear once there - we know you economists are a particular bunch! Hopefully this advice will allow you to check one small thing off your (very long) checklist, and allow you to focus on the more important aspects of attending an academic conference: the networking, presenting, and possibly - fingers crossed - even having fun! So, let's get serious. Check out our conference listings The basics It’s quite likely that you’ll be traveling prior to the conference and might not have access to an iron. This one should keep in mind. Moreover, remember to pack clothes that work for both standing and sitting (there will be a lot of both, economists really can talk) and won’t be completely wrinkled after a few hours. With this in mind, avoiding linen is probably a good idea, unless, perhaps, your conference is taking place on a tropical island. In which case, lucky you! Bringing some back-up options is always a good idea in case one of your items of clothing gets a wee bit dirty or, god forbid, you have an accident. Wearing dark colours is normally a good idea as they are universally flattering and hide wrinkles and spillages well. Finally, pack some layers; you might be in a room with an air conditioner for one talk and in a veritable sauna the next, and you don't want to be distracted by being too hot or too cold. Smart is better than casual Broadly speaking, it’s always better to dress up rather than down. While “business wear” can mean a full suit for some folks and jeans and a nice top for others, it’s better to be the only guy with a tie than the only one without. No matter what time of year, shorts are never a good choice, as they come across as too casual. For women, skirts and dresses are fine, but nothing too tight or short, as this can seem unprofessional. A nice blazer or scarf can dress u…
disambiguating description: While you may be used to the daily routine of graduate school or teaching, presenting at a conference, or even just attending one, can be a whole different activity. The preparatory checklist is long enough as it is, without having the added conundrum of worrying about your appearance. If you’re in business school, perhaps you’re used to ironing your button-down shirt and slacks every day, but most academics cringe when they hear the term 'business casual'. But fear not. We, the gracious folks at INOMCS, are here to help.
date posted: 2019-04-30T07:00:00Z
date modified: 2026-07-07T12:58:08Z
language: en
keywords: economics
keywords: James Matthew Alston
keywords: academia
keywords: dress code
keywords: conferences
keywords: finance
type: advice
disciplines: marketing
disciplines: economics
disciplines: education
disciplines: law
disciplines: socialscience
disciplines: business
disciplines: psychology
disciplines: management
disciplines: generaleconomics
discipline labels: Marketing
discipline labels: Economics
discipline labels: Education
discipline labels: Law
discipline labels: Economics and Social Sciences
discipline labels: Business
discipline labels: Psychology
discipline labels: Management
discipline labels: General Economics (JEL A)

The US Economy is Failing Young People
type: Article
title: The US Economy is Failing Young People
description: But what of people's lives? With records being broken, and figures heralded as ‘the best ever’, you'd be forgiven for presuming people’s lives were improving in parallel, that the numbers translated into more than just useful soundbites. For most this is yet to happen. In explanation, economist, Joseph Stiglitz, has denied that the nation’s economic health has experienced a marked improvement, claiming ‘neither GDP nor the Dow is a good measure of economic performance, for neither tells us what’s happening to ordinary citizens’ living standards’. Indeed, if one looks to more tangible metrics - life expectancy (falling and among the lowest in the developed world), disposable income (on the decline), and household debt (skyrocketing) - a vastly different picture of American life emerges: one of stagnation, uncertainty and strife. It’s with this picture that young Americans, in particular, most identify. Instead of prosperity, millennials (Americans born between 1981 and 1996) anticipate economic future of precariousness, Trump’s creation of ‘the greatest economy… in the history of the country’ having no recognisable bearing on their reality. Optimism, the characteristic for which they were once known, is fading, and in its place has grown a shrewd pragmatism, accompanied by an acceptance that the US economy, regardless of its supposed merits, is deeply flawed. Whoever is experiencing its much touted ‘improvements’, it’s not them. <11an>limit:2;categories:Graduate / Traineeship|Internship|Junior Industry Position|PhD Candidate;countries:united states;disciplines:Economics</11an> Broken promises Remember, this was the generation that were told a college education was everything, the ticket to a comfortable life. Having held up their end of the bargain - becoming the most educated generation ever in the process - they’re now finding out the social contract to which they committed was sold on false pretences. High on the list of grievances are tuition fees - they are eye-…
disambiguating description: The US economy is improving, so we are told. With the financial crash receding into the distance, almost out of sight, things are looking up, the future is finally brightening. Unemployment reached a 50-year low in 2019, falling to 3.5%, while US employers have added almost 5 million jobs in just two years. These are ‘the best economic numbers our country has ever experienced’, the President declared at Davos, with characteristic humility. And bombast aside, his sentiment is not without foundation, the US economy is posting some good numbers. In addition to jobs, GDP has been growing at close to 3 percent annually, and the Dow Jones has increased by 49% is the last 3 years - all of which is great election fodder for the coming campaign. Democrats should be wary.
date posted: 2020-01-28T15:06:54Z
date modified: 2026-07-07T10:14:47Z
employment type: onsite
language: en
keywords: William Pearse
keywords: Millennials
keywords: US Economy
type: blog
disciplines: politics
disciplines: publiceconomicspolicy
disciplines: economics
disciplines: macroeconomicsmonetary
disciplines: socialscience
disciplines: economicdevelopmentgrowth
disciplines: healtheducationwelfareeconomics
discipline labels: Politics
discipline labels: Public Economics & Economic Policy (JEL H)
discipline labels: Economics
discipline labels: Macroeconomics and Monetary Economics (JEL E)
discipline labels: Economics and Social Sciences
discipline labels: Economic Development, Innovation and Growth (JEL O)
discipline labels: Health, Education, and Welfare (JEL I)

Price Elasticity of Supply
type: CreativeWork
title: Price Elasticity of Supply
description: \begin{equation*} \eta_A = \frac{\Delta\mathit{q}_{A}}{\Delta\mathit{p}_{A}} = \frac{\frac{d{q}_{A}}{\mathit{q}_{A}}}{\frac{d{p}_{A}}{p}} \end{equation*} Price elasticity of supply is generally positive because firms are motivated to supply more (less) of an item as its price rises (falls). Precisely how sensitive supply is to changes in price depends on several factors. The most important is how long it takes sellers to adjust the amount of the item they can offer for sale. This is not just about the ability to ramp up production when more of the item is demanded. It is also about how feasible or costly it is for the seller to store items when demand falls. The more complex the production process, the greater the dependence of sellers on other markets. Greater interdependence also increases the seller’s responsiveness to price changes. In markets for physical goods and the local provision of services, public infrastructure is also a significant factor in the price elasticity of supply. The supply curves for five standard theoretical cases are shown in the graph below. In the first case, the supply curve S1 starts at the origin (0,0), and is linear and upward-sloping. This implies that any change in price is met with a proportional change in quantity supplied. Therefore the price elasticity of supply is unitary η1 = 1. If the item’s price increases by 10%, so too does its quantity supplied. As with the price elasticity of demand there are two extreme cases for the price elasticity of supply: perfect elasticity and perfect inelasticity. The horizontal supply curve S2 represents perfectly price-elastic supply: the elasticity tends towards (positive) infinity η2 → ∞. In theory, this means that if its price increases above p2 then an infinite amount of the item will be supplied. But, if its price drops below p2 then none will be supplied. Clearly, this is unlikely to happen in practice. However, in industries with flexible production and factor markets with spare capaci…
disambiguating description: The price elasticity of supply for an item A ηA measures how the quantity of the item supplied qA changes in response to a change in the item’s price pA
date posted: 2020-02-05T10:55:32Z
date modified: 2026-06-29T10:30:32Z
language: en
keywords: Price elasticity of supply
keywords: Tom McKenzie
type: terms
disciplines: microeconomics
disciplines: economics
disciplines: socialscience
discipline labels: Microeconomics (JEL D)
discipline labels: Economics
discipline labels: Economics and Social Sciences

Oligopoly
type: CreativeWork
title: Oligopoly
description: Markets for goods and services have varying numbers of sellers, ranging from one (monopoly) to infinitely many (perfect competition). Oligopoly lies somewhere in between. In practice, industries with between two (duopoly) and six major players are considered to be in oligopolistic competition. Examples of oligopoly include the markets for mobile telephone networks such as Deutsche Telekom, Orange, Telefónica and Vodafone in Europe, the market for large passenger aircraft like Airbus and Boeing, and the market for soft drinks like Coca Cola and PepsiCo. The theory of oligopoly originated in 1838. French polymath Antoine Augustin Cournot observed a market for mineral water, which had two firms competing for market share. Realizing that neither firm could ignore the other’s supply of water in the market, Cournot analyzed the market as a game in which the quantity supplied by one firm q1 is a direct function of the quantity supplied by the other q2, i.e. reaction function q1*(q2) as shown in the graph on the left. Assuming that each firm sells an identical or homogenous product, faces identical costs and that the firms act simultaneously, equilibrium quantities supplied in the market are determined where the reaction functions cross q1*(q2*) = q2*(q1*). This was the first formal representation of a Nash equilibrium. It was over a century before John Nash published his general proof. In Cournot equilibrium, both firms make a positive profit and the market is supplied with more of the item at a lower price than in monopoly, but less of the item and at a higher price than in a perfectly competitive market. Figure 1: Nash equilibrium comparison between Cournot and Bertrand market scenarios Forty-five years later in 1883, another French professor, Joseph Louis François Bertrand, contended that Cournot’s analysis of oligopolistic competition was unrealistic since firms more commonly compete not on quantity but on price in the real world. Under the same assumptions of identica…
disambiguating description: An oligopoly is a market in which there are only a few sellers of the item being traded. The decisions of one seller thus affect the decisions of the other sellers in the market. Sellers compete strategically in the market by taking each other’s interests and actions into account.
date posted: 2020-02-05T11:01:37Z
date modified: 2026-06-29T09:56:57Z
language: en
keywords: oligopoly
keywords: Tom McKenzie
type: terms
disciplines: microeconomics
disciplines: publiceconomicspolicy
disciplines: economics
disciplines: socialscience
disciplines: laweconomics
disciplines: businesseconomics
disciplines: industrialorganization
discipline labels: Microeconomics (JEL D)
discipline labels: Public Economics & Economic Policy (JEL H)
discipline labels: Economics
discipline labels: Economics and Social Sciences
discipline labels: Law and Economics (JEL K)
discipline labels: Business Economics (JEL M)
discipline labels: Industrial Organization (JEL L)

Price Elasticity of Demand
type: CreativeWork
title: Price Elasticity of Demand
description: \begin{equation*} \epsilon_A = \frac{\Delta\mathit{q}_{A}}{\Delta\mathit{p}_{A}} = \frac{\frac{d{q}_{A}}{\mathit{q}_{A}}}{\frac{d{p}_{A}}{p}} \end{equation*} Price elasticity of demand is generally negative because people tend to demand more (less) of an item as its price falls (rises). Precisely how sensitive demand is to changes in price depends on many things. Some factors include the type of item being sold, the availability of substitutes, the type of buyer, and the time period considered. For example, basic food items such as bread tend to be price-inelastic: people adjust their demand in response to changes in price less than proportionately to the changes -1 < ϵbread < 0. This means that if the price of bread goes up 10%, quantity demanded will fall by less than 10%. On the other hand, let’s consider the rise in price of a particular type of bread (“special bread”). If other types of bread that represent good substitutes for it do not change in price, then people may respond by reducing consumption of special bread. This could happen in (potentially greater) proportion to the change in price, i.e. ϵspecial_bread ≤ -1, or result in the purchase of other bread to replace it (see cross elasticity of demand). Demand for special bread would then be said to be price-elastic. Whenever the quantity of an item demanded changes by at least as much, or disproportionately more, than a change in its price ϵA ≤ -1, the item is price-elastic. Tourism is one sector of the economy where items (transport, accommodation, food) tend to be very price-elastic: if holidays reduce (increase) in price then more (fewer) people will go on holiday. Indeed, the demand for any goods and services that are not necessary for daily life tends to be price-elastic. Of course, what is considered a necessity for one person may not be necessary for everyone else in the economy. This is relevant for sellers of items in the market who often try to group their customers by price sensitivity and prac…
disambiguating description: The price elasticity of demand for an item A ϵA measures how the quantity of the item demanded qA changes in response to a change in the item’s price pA.
date posted: 2020-02-04T10:33:05Z
date modified: 2026-06-29T10:23:52Z
employment type: onsite
language: en
keywords: Price elasticity of demand
keywords: Tom McKenzie
type: terms
disciplines: microeconomics
disciplines: economics
disciplines: socialscience
discipline labels: Microeconomics (JEL D)
discipline labels: Economics
discipline labels: Economics and Social Sciences

Economies of Scale
type: CreativeWork
title: Economies of Scale
description: The economic theory of production divides costs into two main categories, fixed and variable. Fixed costs, or overheads, cover expenses that do not depend on the level of output in the short term: the cost of purchasing or renting land, buildings and machines, and the cost of running them. Variable costs depend directly on the level of output and include the cost of inputs that vary with output, such as raw materials and hours of labour. Figure 1: Returns to scale as quantity increases Average costs, or unit costs, are simply the total of all fixed and variable costs, divided by the level or units of output. As shown in the graph, unit costs are relatively high at low levels of production, which is due to fixed costs. As output increases, average costs fall as the outlays for land, buildings and machines are spread over more units. The entity is said to be experiencing increasing returns to scale: it is good for it to grow (between 0 and q1 output in the graph). However, unit costs will not decline indefinitely as machines suffer wear and tear and need to be repaired or replaced, and more buildings and land are required for greater production. Unit costs may settle at a minimum amount for a range of output levels. No further cost savings can be made simply by varying output: the returns to scale are then constant (between q1 and q2 output in the graph). Eventually, it becomes difficult to manage very large levels of output and unit costs start to rise: the entity is now experiencing decreasing returns to scale (beyond q2 output in the graph). Economies of scale may not be due solely to production costs. Insofar as the entity is producing items for sale, conditions in the market for the items also determine economies of scale. It will only be profitable to increase production as long as there is sufficient demand for the item and/or the competition allows for it. This interdependence with the market makes it difficult to pinpoint the optimal size of an entity for eff…
disambiguating description: Economies of scale are the savings that occur when an entity grows in size and can produce output more efficiently or at lower cost. Here, the word “entity” can refer to individuals, organisations or even entire nations.
date posted: 2020-01-20T13:34:20Z
date modified: 2026-06-29T08:18:48Z
language: en
keywords: Tom McKenzie
keywords: Economies of Scale
type: terms
disciplines: economics
disciplines: macroeconomicsmonetary
disciplines: socialscience
disciplines: businesseconomics
disciplines: industrialorganization
discipline labels: Economics
discipline labels: Macroeconomics and Monetary Economics (JEL E)
discipline labels: Economics and Social Sciences
discipline labels: Business Economics (JEL M)
discipline labels: Industrial Organization (JEL L)

Income Elasticity of Demand
type: CreativeWork
title: Income Elasticity of Demand
description: \begin{equation} \mathit{YED}_{A} = \frac{\Delta\mathit{q}_{A}}{\Delta\mathit{Y}} = \frac{\frac{\partial{q}_{A}}{\mathit{q}_{A}}}{\frac{\partial{Y}}{Y}} \end{equation} In the market for any good or service, how much of it is demanded depends to a large extent on its affordability to buyers. An item’s affordability is determined both by the price at which it is offered and by the buyers’ available budgets. While price elasticity of demand gauges the sensitivity of buyers to changes in the item’s price (it measures pricing sensitivity), income elasticity of demand considers the relationship between budgets and quantity demanded. The concept of income elasticity is used to classify goods and services into two main types: normal and inferior. A normal good or service is one whose demand moves in the same direction as income. That is, if the buyer’s income increases (falls) then the buyer will demand more (less) of the product. In this case, YEDA > 0. On the other hand, an inferior good or service is one whose demand moves in the opposite direction to income, YEDA < 0. Examples of normal items include consumer goods and services such as clothes, electronic goods, general transport services and theatre and concert tickets. Consumers generally want more as they become better off. Normal goods and services can be subdivided further into the categories of basic necessities and luxury items. Basic necessities are items whose income elasticity of demand is inelastic, 0 < YEDA < 1. That is, demand does respond positively but it does not rise or fall by as much as income in response to any change in income. As its name suggests, demand for a basic necessity is less sensitive to a change in income: the buyer needs it! In contrast, a luxury item is one whose demand increases as soon as it becomes affordable; its income elasticity of demand is said to be elastic, YEDA > 1. Inferior goods and services include food staples such as bread and shared transport such as public bus service…
disambiguating description: The income elasticity of demand formula YEDA is a measure of how the quantity demanded of an item A qA in a market is affected by a change in income Y on the demand side of the market:
date posted: 2020-01-20T14:30:12Z
date modified: 2026-06-29T09:13:36Z
employment type: onsite
language: en
keywords: Demand
keywords: Income Elasticity of Demand
keywords: elasticity
keywords: Income
keywords: Economics Terms
keywords: Tom McKenzie
type: terms
disciplines: microeconomics
disciplines: economics
disciplines: socialscience
discipline labels: Microeconomics (JEL D)
discipline labels: Economics
discipline labels: Economics and Social Sciences

Adverse Selection
type: CreativeWork
title: Adverse Selection
description: Common examples of adverse selection include the market for insurance and the labour market In the insurance market, providers know less about their customers’ risk levels than the customers themselves, and riskier customers have a greater interest in purchasing insurance. Risky customers then dominate the insurance market, increasing the cost to providers because there are more claims from such customers. The price of insurance (the insurance premium) then rises, which also affects less risky customers, who may then choose not to purchase insurance coverage at all. Adverse selection thus leads to a smaller, less efficient market than a market in which insurance companies knew everything about their customers In the labor market, employers know less about job candidates than the candidates themselves, and unsuitable candidates are attracted to job descriptions and job adverts promising good salaries and working conditions. When such candidates apply for jobs they dilute the pool of potential employees and, in the absence of a mechanism for employers to screen candidates for their suitability, this reduces the value of employees to the employers, who in turn offer lower wages and benefits. Suitable candidates are then less attracted to the jobs. Again, adverse selection leads to a less efficient market than one in which employers had full information about job candidates. Adverse selection is potentially very harmful as it can mean that some people obtain jobs where they will do serious damage to others. A particularly dark example of this is child molesters being attracted to jobs which grant them access to children, such as schools and clubs providing activities for children. Not only do unlucky children then suffer, but trust in the market is eroded and the “right” people stop participating in the market. This is why the teaching profession is highly regulated and laws exist to enforce a thorough screening of applicants for such roles. Further reading George Akerl…
disambiguating description: Adverse selection occurs as a case of asymmetric information whenever a more well-informed market player uses information to take advantage of another player in the market who does not hold that information. In turn, this adversely affects participation in the market.
date posted: 2020-01-07T11:06:54Z
date modified: 2025-03-26T17:26:39Z
employment type: onsite
language: en
keywords: Labour Market
keywords: Economic Terms
keywords: Adverse Selection
keywords: Insurance
keywords: Tom McKenzie
type: terms
disciplines: microeconomics
disciplines: economics
disciplines: socialscience
discipline labels: Microeconomics (JEL D)
discipline labels: Economics
discipline labels: Economics and Social Sciences

Asymmetric Information
type: CreativeWork
title: Asymmetric Information
description: In classical economic theory, information is assumed to be complete and evenly distributed among market players: each player knows how the other players value the items being traded in the market. This simplifies the analysis of the market because the players’ actions will be certain and predictable. Market outcomes (prices and quantities) can then be easily calculated. However in reality, market players tend not to know everything about each other. That is, information in the market is asymmetrically distributed. Information is valuable, and better informed market players can take advantage of their superior information to achieve better outcomes than less informed players. For example, sellers of goods typically hold more information about the goods they are selling than do prospective buyers. Sellers can reveal information that makes the goods seem more valuable to buyers, while not disclosing any information that would reduce their value to buyers. The price of the good will then be higher than it would have been in a market with complete information. This is one reason why firms spend so much money on marketing and advertising! Other asymmetric information examples include if a homeowner wanted to sell their house, they would have greater information about it than the buyer. Asymmetric information refers to this unequal knowledge between buyers and sellers. Asymmetric information can also be present in financial markets, where insiders or large investors have access to information that is not available to the general public, giving them an unfair advantage in making investment decisions. In all of these cases, one party has more information than the other party, which can create an imbalance. Understanding the structure of information in a market (i.e. how the information is distributed: who knows what about whom) is crucial for predicting what will happen in that market. This can be more important for predicting outcomes than holding the information itself. Wh…
disambiguating description: Asymmetric information in economics refers to a state where market players have different levels of information about each other’s valuations of the market. As such, their information is asymmetric, or asymmetrically distributed.
date posted: 2020-01-07T12:09:10Z
date modified: 2025-03-27T11:47:06Z
employment type: onsite
language: en
keywords: Asymmetric Information
keywords: Tom McKenzie
type: terms
disciplines: microeconomics
disciplines: economics
disciplines: socialscience
discipline labels: Microeconomics (JEL D)
discipline labels: Economics
discipline labels: Economics and Social Sciences

Ceteris Paribus
type: CreativeWork
title: Ceteris Paribus
description: Ceteris is Latin for “other things” and paribus means “equal”, so the literal translation is “other things being equal”. The concept of ceteris paribus in economics it is generally understood to mean that all other things remain equal or are held constant while dealing with the issue at hand. Video Note: In the video, “ceteris” is pronounced with a "ke". However, in many other places it will be pronounced “se". Our research says either is fine. Our narrator just found it more natural in their accent to say the former. But if you have strong feelings about Latin pronunciations do let us know. As an example of ceteris paribus analysis, one may wonder what the impact of introducing a minimum wage will be on the level of employment in an economy. A basic economic analysis of the labor market, as shown in the graph just below, might consider employers’ demand for labor D and (potential) employees’ supply of it S, quantified in hours worked per period for a particular hourly rate of pay. Demand for labor increases as the hourly wage falls since it becomes cheaper to hire workers. On the other hand, the supply of labor increases as the hourly wage rises because it is more attractive for people to work at higher wages. In this free labor market, equilibrium is where demand meets supply and h* hours are purchased by employers at the hourly wage of w* (the market-clearing rate of pay). Figure 1: Involuntary unemployment in the labor market All else equal, ceteris paribus, if a minimum wage Wm is introduced that is higher than the market-clearing rate of pay w* then employers will demand less labor and there will be a reduction in employment (total hours worked decrease from h* to hm), creating involuntary unemployment. Although there are workers in the labor market who would like to supply more hours’ work than hm at the minimum wage Wm employers are unwilling to pay for more than hm hours at the new rate. Note how this basic analysis ignores other effects of the increase in …
disambiguating description: When economists say “ceteris paribus” they are talking about the direct effect of X on Y while assuming that the rest of the world stands still.
date posted: 2020-01-07T12:30:34Z
date modified: 2026-06-25T11:58:01Z
employment type: onsite
language: en
keywords: Ceteris Paribus
keywords: Tom McKenzie
type: terms
disciplines: microeconomics
disciplines: economics
disciplines: socialscience
disciplines: econometricsstatisticsquantitative
disciplines: economicthoughtmethodology
discipline labels: Microeconomics (JEL D)
discipline labels: Economics
discipline labels: Economics and Social Sciences
discipline labels: Econometrics, Statistics and Quantitative Methods (JEL C)
discipline labels: Economic Thought & Methodology (JEL B)

Deadweight Loss
type: CreativeWork
title: Deadweight Loss
description: In economic theory, free markets are beneficial to society because they allow consumers and producers to exchange goods and services for money according to their own maximization of personal utility. Both sides of the market gain at the equilibrium price; we call these gains consumer surplus and producer surplus. In a simple economy with just one market, the sum of consumer and producer surplus equates to social welfare: the market is then understood to be doing something good for society. If the government decides to intervene in a market, for example by levying a tax on an item which is being sold by producers to consumers, then this will force a new equilibrium in the market. Consider the market in the graph below, with producer supply S, consumer demand D and a free-market equilibrium of q* units sold at p* per unit. If the government introduces a simple unit tax (a certain amount of tax per unit of the item sold) to be collected from the producers, this forces a parallel shift of the supply to the left and an effective new supply curve of S’. This shift occurs because the tax increases the cost of selling the item, which reduces the amount of the item that producers wish to sell as they make less profit off of it. The new equilibrium point is where D crosses S’ at a quantity q’ and a retail or consumer price of p’cons. Although the item is sold at price p’cons this new price includes the tax and the producer only receives the price p’prod per unit. The government then receives (p’cons – p’prod)q’ in tax revenue. Figure 1: Deadweight loss produced from a tax on a competitive market Note how the new quantity q’ is less than the original quantity q* (since less of the item is bought at a higher price). Therefore both consumer surplus and producer surplus are reduced. Some of the original consumer surplus and producer surplus has been transformed into tax revenue for the government. However, the government is not able to recoup all of the reduction in total surplus…
disambiguating description: A deadweight loss is the cost to society from economic inefficiency that occurs when a free-market equilibrium cannot be reached. This can be due to a market intervention like a price ceiling, the dominance of a monopoly, or some other shock to supply and/or demand.
date posted: 2020-01-13T10:44:00Z
date modified: 2026-06-25T12:08:41Z
employment type: onsite
language: en
keywords: Deadweight Loss
keywords: Tom McKenzie
type: terms
disciplines: microeconomics
disciplines: publiceconomicspolicy
disciplines: economics
disciplines: socialscience
discipline labels: Microeconomics (JEL D)
discipline labels: Public Economics & Economic Policy (JEL H)
discipline labels: Economics
discipline labels: Economics and Social Sciences

Law of Diminishing Marginal Returns
type: CreativeWork
title: Law of Diminishing Marginal Returns
description: For example, the production of fruit and vegetables requires sufficient land of the appropriate type with water and sunlight. It also requires labor and machinery to plant, cultivate and harvest the crop, as well as packaging and people or machines to present the produce for sale. Similarly, the production of a school education requires trained teachers and administrators, books and other learning materials, as well as buildings and/or other space to host the education. Applied to the first example of producing fruit and vegetables, the law of diminishing marginal returns implies that increasing the input of one factor such as land, while holding the input of the other factors (labor and machinery) constant, will increase the amount of the fruit and vegetables produced at a decreasing rate as more land is added. That is, each additional square meter of land, for fixed levels of the other factors, will yield smaller increases in output of fruit and vegetables. Applied to the second example, the first teacher or the first book will add much to the education provided. But, each subsequent teacher employed without increasing the availability of learning materials, administrators, or physical space, will expand education at a decreasing rate. The law of diminishing marginal returns can be represented graphically in two dimensions with the (total) return R as a concave function of the input i of a single factor of production (while the inputs of other factors are held constant). As more of this single factor of production is employed, for the same unit increases in input Δi, the additional (i.e. marginal) return diminishes ΔR” < ΔR’ < ΔR: Figure 1: Law of diminishing marginal returns for a revenue function At first glance, the law of diminishing marginal returns might seem to contradict the concept of economies of scale whereby increasing inputs should generate increasing, not diminishing, returns. Note however that the law of diminishing marginal returns relates specific…
disambiguating description: The production of goods and services requires the input of various factors of production. The law of diminishing marginal returns states that as the input of a factor of production increases, ceteris paribus, the additional output from each additional unit of that input decreases.
date posted: 2020-01-13T10:08:13Z
date modified: 2026-06-29T09:41:34Z
employment type: onsite
language: en
keywords: Law of Diminishing Marginal Returns
keywords: Tom McKenzie
type: terms
disciplines: microeconomics
disciplines: economics
disciplines: socialscience
disciplines: businesseconomics
discipline labels: Microeconomics (JEL D)
discipline labels: Economics
discipline labels: Economics and Social Sciences
discipline labels: Business Economics (JEL M)

Demand Curve
type: CreativeWork
title: Demand Curve
description: The following graph shows the demand curve for a typical good or service. As the item’s price (vertical axis) falls from pD1 to pD2 to pD3, the quantity demanded (horizontal axis) rises from qD1 to qD2 to qD3, and vice versa. As price rises, quantity demanded falls. Figure 1: A linear demand curve Note how the demand curve shown might be representing the preferences of a single individual for the item: the individual decides to buy more (less) of the item as its price falls (rises). This movement along the demand curve shows the inverse relationship between price and quantity demanded, which is known as the law of demand. Alternatively, it represents the quantities of the item demanded by all participants in the market at various prices, i.e. the market demand curve. The market demand curve is simply the sum of all individual demand curves for the item in the economy. In general, firms will be interested in estimating market demand rather than individual demand for their products and services. A demand curve need not be linear (hence the name “curve”!) and its slope at each point represents (but is not the same as) the price elasticity of demand. This shows how sensitive the individual is or consumers in the market are to changes in price. Demand curves are drawn at a given level of income for the individual or consumers in the market. Should the income level change, the demand curve will shift inwards (shift to the left) or outwards (shift to the right), depending on whether income has risen or fallen and the item’s income elasticity of demand. For “normal” consumer goods and services, greater quantities will be demanded at every price if income rises and the demand curve shifts outwards to the right. For so-called “inferior” consumer goods and services, lower quantities will be demanded at each price if income rises. The demand curve will shift inwards to the left, as consumption of such goods and services is replaced by consumption of other goods and services tha…
disambiguating description: A demand curve shows the relationship between the price of a good and the quantity of the good demanded, either by an individual or by all participants in the market. Demand curves are downward-sloping for most items as greater quantities are demanded at lower prices.
date posted: 2020-01-13T11:13:09Z
date modified: 2026-06-25T12:12:47Z
employment type: onsite
language: en
keywords: Tom Mckenzie
keywords: Demand Curve
type: terms
disciplines: microeconomics
disciplines: economics
disciplines: socialscience
discipline labels: Microeconomics (JEL D)
discipline labels: Economics
discipline labels: Economics and Social Sciences

Supply and Demand
type: CreativeWork
title: Supply and Demand
description: A basic economic idea is that the price for a good or service will eventually settle at a point when quantity demanded and quantity supplied are equal (assuming all other factors remain equal). This is referred to as the equilibrium. Our article on market equilibrium describes how this process works in the economy. The consumer side of market equilibrium is demand. Quantity demanded depends, with all other factors being equal, on the price of the commodity. Of course, all other factors are never constant: other goods in the market, the preferences of consumers, and many other things influence the demand for a good. The demand curve generally slopes downward, showing that consumers want more of a product when it is cheaper, and less when it is more expensive. Demand is also dependent on many other factors: whether complements or substitutes are available, the amount of income the consumer has, the elasticity of demand, and more. Meanwhile, the supply curve typically slopes upward. This shows that firms like to sell goods that have higher prices, and will offer to sell a large quantity of a good if the price is high. But when the price is low, firms offer less of the good for sale. Other factors that influence supply include production costs, the difficulty of competition, the presence of taxes or subsidies, and more. For more about supply and demand, and how they interact, see our article about Market Equilibrium.
disambiguating description: “Supply and demand” is probably one of the first things people learn about economics. Supply refers to the quantity of a product or service that producers are willing to supply at each price, while demand refers to the quantity consumers are willing to buy at each price at a given point in time.
date posted: 2020-01-09T14:22:32Z
date modified: 2023-08-09T17:42:05Z
employment type: onsite
language: en
keywords: James Matthew Alston
keywords: Supply and Demand
type: terms
disciplines: microeconomics
disciplines: economics
disciplines: macroeconomicsmonetary
disciplines: socialscience
disciplines: business
disciplines: businesseconomics
discipline labels: Microeconomics (JEL D)
discipline labels: Economics
discipline labels: Macroeconomics and Monetary Economics (JEL E)
discipline labels: Economics and Social Sciences
discipline labels: Business
discipline labels: Business Economics (JEL M)

Opportunity Cost
type: CreativeWork
title: Opportunity Cost
description: A simple example of this: the opportunity cost of using a machine to make and sell one product (call it Product A) is the lost potential revenue from selling another product (Product B) that could have been made using the machine instead. That is, Product B cannot be produced, and its unrealized revenue is the opportunity cost of using the machine to make Product A. If Product A is worth €50, and Product B is worth €35, then this opportunity cost for making Product A is €35 - €50 = -€15. For Product B, it is €50 - €35 = €15. This might seem confusing at first, but it makes logical sense. A suboptimal choice (Product B) should have a positive opportunity cost, because it eliminates the chance for a higher return by choosing the better alternative (Product A). Meanwhile, Product A’s opportunity cost is negative because the “cost” of choosing Product A is the “opportunity” to make a worse choice and lose money. To extend this example, if the machine involved in production is specialized to only make Product A, it may seem like there is no opportunity cost involved in the production process. Since the machine couldn’t produce anything else anyway, no “sacrifice” of other products is needed. However, this is not correct. The resources used as inputs for Product A have an opportunity cost of whatever next-best purpose they may have been used for. This opportunity cost is known as an implicit cost, since money is not actually exchanged. On the other hand, explicit costs are simply the money given out. In this case, the explicit cost is the price to buy the specialized machine. Opportunity cost considers both explicit and implicit costs, which is a key difference between opportunity cost and how cost and profit are typically measured in accounting or business contexts. You might be wondering where we stop counting additional opportunity costs. If this company sold Product A for €50, what is the opportunity cost? The lost chance to sell Product B for €35 instead? Or is it th…
disambiguating description: Opportunity cost refers to the loss of the next-best positive outcomes of a choice when an alternative decision is made. In other words, the next best alternative that is given up is the opportunity cost. This cost does not only refer to money, but any lost benefits that the other choice could have bestowed. Opportunity costs are involved in every decision that is made, even if they are not obvious at first.
date posted: 2020-01-09T14:19:37Z
date modified: 2026-06-29T09:57:50Z
language: en
keywords: Opportunity Cost
keywords: James Matthew Alston
keywords: Sean McClung
type: terms
disciplines: microeconomics
disciplines: economics
disciplines: socialscience
disciplines: generaleconomics
discipline labels: Microeconomics (JEL D)
discipline labels: Economics
discipline labels: Economics and Social Sciences
discipline labels: General Economics (JEL A)

Cross Elasticity of Demand
type: CreativeWork
title: Cross Elasticity of Demand
description: \begin{equation*}\epsilon_{AB} = \frac{\Delta\mathit{q}_{A}}{\Delta\mathit{p}_{B}} = \frac{\frac{{dq}_{A}}{\mathit{q}_{A}}}{\frac{{dp}_{B}}{p_B}}\end{equation*} In microeconomics, individuals' utility (or material well-being) is assumed to depend on their access to, or consumption of, bundles of items. It is also contingent on individuals seeking to maximize their utility. The precise relationship between the consumption of particular items and an individual’s utility is determined by the person’s preferences. Individuals are constrained in their consumption by their budgets and by the prices of the items. If the price of an item increases, then the individual’s ability to obtain utility through consumption of that item is reduced. It may be possible to obtain utility more efficiently through consumption of a different item instead. The extent to which this is possible depends on the substitutability of other items with the item whose price has increased. For example, an individual may like to consume hazelnuts and peanuts. Ideally the individual likes to consume both types of nuts (due to diminishing marginal utility). However, if the price of one nut type – say peanuts – increases, then the individual can afford fewer peanuts. This would lead them to reduce peanut consumption and replace some of this product with hazelnuts. Hazelnuts and peanuts are thus substitutes in consumption. Note that the reverse is also true if the price of peanuts falls and becomes more affordable. The individual will then obtain utility more efficiently by reducing hazelnut consumption and increasing peanut consumption. This means that in the case of substitutes, the cross elasticity of demand is positive ϵHazelnutsPeanuts > 0. The interrelationship between items is key in the cross elasticity of demand. Some items are consumed together as complements rather than as replacements or substitutes. For example, fuel is required to power vehicles. If the price of either one of these items cha…
disambiguating description: The cross elasticity of demand (or cross-price elasticity of demand) ϵAB refers to the sensitivity of the demand for item A qA to changes in the price of item B pB:
date posted: 2020-01-07T14:20:00Z
date modified: 2023-05-15T06:53:33Z
employment type: onsite
language: en
keywords: Cross elasticity of demand
keywords: Tom McKenzie
type: terms
disciplines: microeconomics
disciplines: economics
disciplines: socialscience
disciplines: econometricsstatisticsquantitative
discipline labels: Microeconomics (JEL D)
discipline labels: Economics
discipline labels: Economics and Social Sciences
discipline labels: Econometrics, Statistics and Quantitative Methods (JEL C)