What is a Customs Union? A customs union is an agreement between two or more neighboring countries to remove trade barriers, reduce or abolish customs duty, and eliminate quotas. Such unions were defined by the General Agreement on Tariffs and Trade (GATT) and are the third stage of economic integration. Unlike in free trade agreements,…
What is Consumer Surplus? Consumer surplus, also known as buyer’s surplus, is the economic measure of a customer’s excess benefit. It is calculated by analyzing the difference between the consumer’s willingness to pay for a product and the actual price they pay, also known as the equilibrium price. A surplus occurs when the consumer’s willingness…
What is Capacity Utilization? Capacity utilization refers to the manufacturing and production capabilities that are being utilized by a nation or enterprise at any given time. It is the relationship between the output produced with the given resources and the potential output that can be produced if capacity was fully used. Capacity utilization can also…
What is an Economic Depression? An economic depression is an occurrence wherein an economy is in a state of financial turmoil, often the result of a period of negative activity based on the country’s Gross Domestic Product (GDP) rate. It is a lot worse than a recession, with GDP falling significantly, and usually lasts for many…
What is a Calendar Spread? A calendar spread is a trading technique that involves the buying of a derivative of an asset in one month and selling a derivative of the same asset in another month. It is most commonly done in the case of futures contracts in commodity markets, especially for grains such as…
Who Evaluates Bank Loans? The lending process involves a series of activities that lead to the approval or rejection of a bank loan application. The loan department of a bank employs different credit professionals with unique roles and responsibilities that complement each other to make the lending process complete. Loans are one of the primary…
What is Political Economy? Political economy is a social science that studies production, trade, and their relationship with the law and the government. It is the study of how economic theories affect different socio-economic systems, such as socialism and communism, along with the creation and implementation of public policy. Different groups in an economy have…
What is the Solow Growth Model? The Solow Growth Model is an exogenous model of economic growth that analyzes changes in the level of output in an economy over time as a result of changes in the population growth rate, the savings rate, and the rate of technological progress. The Solow Growth Model, developed by…
What are Variable Rate Loans? A variable rate loan is a type of loan where the interest changes according to changes in market interest rates. Unlike a fixed-rate loan, where borrowers pay a constant interest rate, a variable rate loan comprises varying monthly or quarterly payments that change according to market interest rate changes. Lenders…
