What are Price Floors and Ceilings? Price floors and price ceilings are government-imposed minimums and maximums on the price of certain goods or services. It is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times. Price floors and ceilings are inherently inefficient and lead to suboptimal consumer and producer…
What is Collateral? Collateral (often referred to as collateral security) is when an asset is pledged to a lender, by a borrower, in support of a credit request. If a loan cannot be repaid or refinanced, a lender may take enforcement action against the borrower’s assets in order to recover the outstanding loan principal plus…
What is Economics of Production? Production refers to the number of units a firm outputs over a given period of time. From a microeconomics standpoint, a firm that operates efficiently should attain sound knowledge of its total product, marginal product, and average product. In practice, firms can utilize the figures as metrics to make better…
What is Gross Domestic Product (GDP)? Gross domestic product (GDP) is a standard measure of a country’s economic health and an indicator of its standard of living. Also, GDP can be used to compare the productivity levels between different countries. The biggest advantage of GDP is that calculations of the measure are fairly uniform from…
What is a Vertical Market? A vertical market is one that has a specific industry. Contrary to a horizontal market, which includes players from a variety of industries, a vertical market consists of customers in a narrow industry group. A good example would be the market for MRI scanners, which are primarily sold to hospitals. The…
What is Utility? In the field of economics, utility (u) is a measure of how much benefit consumers derive from certain goods or services. From a finance standpoint, it refers to how much benefit investors obtain from portfolio performance. While it may be intuitive to assume that all investors would like to achieve very high returns,…
What is an Oligopoly? The term “oligopoly” refers to an industry where there are only a small number of firms operating. In an oligopoly, no single firm enjoys a large amount of market power. Thus, no single firm is able to raise its prices above the price that would exist under a perfect competition scenario….
What is the Labor Force? According to the International Labor Organization, a nation’s civil labor force refers to all individuals in a nation that meet the following criteria: Are at ages between 16 to 64 years old Currently with a job or seeking a job Are not serving in the nation’s military Are not pursuing…
What is Nominal vs. Real Gross Domestic Product (GDP)? Nominal Gross Domestic Product (GDP) and Real GDP both quantify the total value of all goods produced in a country in a year. However, real GDP is adjusted for inflation, while nominal GDP isn’t. Thus, real GDP is almost always slightly lower than its equivalent nominal…
What is the Production-Possibilities Frontier? The Production-Possibilities Frontier refers to the idea that in a given economy, factors of production such as labor and capital are scarce. Therefore, there is only a finite amount of any one good that can be produced, and the scarce resources must be carefully allocated to the production of many…
