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Sunk Cost

What is a Sunk Cost? A sunk cost is a cost that has already occurred and cannot be recovered by any means. Sunk costs are independent of any event and should not be considered when making investment or project decisions. Only relevant costs (costs that relate to a specific decision and will change depending on…

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Fiat Money

What is Fiat Money? Fiat money is a currency that lacks intrinsic value and is established as a legal tender by government regulation. Traditionally, currencies were backed by physical commodities such as silver and gold, but fiat money is based on the creditworthiness of the issuing government. The value of fiat money depends on supply…

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Opportunity Cost

What is the Opportunity Cost of a Decision? Opportunity cost is one of the key concepts in the study of economics and is prevalent throughout various decision-making processes. The opportunity cost is the value of the next best alternative foregone. In simplified terms, it is the cost of what else one could have chosen to…

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Wage Drift

What is Wage Drift? Wage Drift is the difference between the wage actually paid to a worker and the wage negotiated. It can be defined as the difference between the wage rates negotiated by a company and the wages actually paid to the workers by the end of the period. Causes Overtime – Overtime is…

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International Monetary Fund (IMF)

What is the International Monetary Fund (IMF)? The International Monetary Fund (IMF) is an institution of the United Nations that sets standards for the global economy with the aim of strengthening its member countries economically. The organization currently lists 189 member countries that are represented on the IMF Executive Board. The ratio of board members…

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Zero Sum Game (and Non Zero Sum)

What is a Zero Sum Game? A zero sum game is a situation where losses incurred by a player in a transaction result in an equal increase in gains of the opposing player. It is named this way because the net effect after gains and losses on both sides equals zero. Is the Stock Market…

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Capital Controls

What are Capital Controls? Capital controls are measures taken by either the government or the central bank of an economy to regulate the outflow and inflow of foreign capital in the country. The measures taken may be in the form of taxes, tariffs, volume restrictions, or outright legislation. They may be applicable to the whole…

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Economies of Scope

What are Economies of Scope? Economies of scope is an economic concept that refers to the decrease in the total cost of production when a range of products are produced together rather than separately. Formula for Economies of Scope Where: C(qa) is the cost of producing quantity qa of good a separately C(qb) is the…

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Pigou Effect

What is the Pigou Effect? The Pigou Effect is a theory proposed by the famous anti-Keynesian economist, Arthur Pigou. It explains a relationship between consumption, employment, and economic output during times of deflation and inflation. According to Pigou, during deflation, prices are low, which leads to greater real wealth. The increased wealth then stimulates demand,…

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Demand Curve

What is a Demand Curve? The demand curve is a line graph utilized in economics, that shows how many units of a good or service will be purchased at various prices. The price is plotted on the vertical (Y) axis while the quantity is plotted on the horizontal (X) axis. Demand curves are used to…

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