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Elasticity of substitution measures the ease with which one can switch between factors of production. The concept has a broad range of applications, from comparisons of labour and capital in firms, immigrant versus native workers in the labour market, to assessing ‘clean’ versus ‘dirty’ methods of production for environmental economics.

Externalities are costs (negative externalities) or benefits (positive externalities) of market transactions that are not reflected in the market price and that affect individuals who are not participating in the market. Depending on the allocation of property rights in the economy, the presence of externalities is addressed through negotiation between the affected parties and/or government intervention in the market.

Derivatives of functions are computed using differential calculus. They are widely applied in economic modelling to measure the effects and rates of change in economic variables, as well as to determine maximum and minimum values of functions.

Universities around the world are currently experiencing a crash course in online education. The coronavirus pandemic has shaken the sector in a big way, leaving professors and students struggling to complete the academic year off campus and having to prepare for the next one under very uncertain circumstances.

An Edgeworth box (named after Irish philosopher and economist Francis Ysidro Edgeworth, 1881) is a two-dimensional representation of a simple, closed economy consisting of two individuals and two items (or resources) that are finite in supply. Any feasible allocation of the items between the individuals is included as a dot in the box; the individuals’ preferences over the items are represented through indifference curves.

A Cobb-Douglas production function models the relationship between production output and production inputs (factors). It is used to calculate ratios of inputs to one another for efficient production and to estimate technological change in production methods.

Individuals derive utility from the consumption of goods and services, and choose these so as to maximise their utility under any given budget.

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.

When the price ratio between items changes this can induce a change in consumption. The part of such a change in consumption that is attributable purely to the change in the price ratio (and not to the associated change in purchasing power) is known as the substitution effect. The remaining part of the change in consumption that is not directly due to the change in the price ratio but is rather brought about by the change in purchasing power is known as the income effect.

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.

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

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.

In a labour market, employees sell their labour (the item in the market) to employers for a wage (the price at which labour is exchanged in the market). Insofar as labour is a factor of production, a labour market is classified as a factor market. As with the market for any normal good or service, demand for labour tends to increase as the wage (price of labour) falls, while the supply of labour tends to increase as the wage rises and it becomes more attractive for people to work.

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

Factor markets (or resource markets) are markets for the inputs to production. A producer is typically a seller in the market for a product (supply SG in the graph below) while simultaneously being a buyer in the markets for its factors of production (demand DF below).

Income elasticity of demand  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:

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.

A demand curve shows the relationship between an item’s price and the quantity of the item 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.

The law of diminishing marginal returns states that as the input of a factor of production increases ceteris paribus, the additional output from the last unit of input decreases.

A deadweight loss is the irrecoverable reduction in economic efficiency that occurs when a free-market equilibrium is disturbed by a market intervention or other shock to supply and/or demand. In economic theory, free markets are beneficial to society because they allow consumers and producers to exchange goods and services for money and both sides of the market gain at the equilibrium price in terms of consumer surplus and producer surplus. In a simple economy with just one

A problem of adverse selection occurs in the case of asymmetric information  whenever a better 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.

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&n

In capital markets, capital is exchanged between investors (who supply it from their assets) and investees (who need it to fund projects and ventures).  The investment horizon is usually at least one year.

An antitrust policy is a law or other government regulation that limits the dominance of large firms and promotes competition in the market.

If market players have different levels of information about each other’s valuations of the market then the information is asymmetric, or asymmetrically distributed. 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.