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…
What is Keynesian Economic Theory? Keynesian Economic Theory is an economic school of thought that broadly states that government intervention is needed to help economies emerge out of recession. The idea comes from the boom-and-bust economic cycles that can be expected from free-market economies and positions the government as a “counterweight” to control the magnitudes…
What is the Quantity Theory of Money? The Quantity Theory of Money refers to the idea that the quantity of money available (money supply) grows at the same rate as price levels do in the long run. When interest rates fall or taxes decrease and the access to money becomes less restricted, consumers become less…
What are Trade Barriers? Trade barriers are legal measures put into place primarily to protect a nation’s home economy. They typically reduce the quantity of goods and services that can be imported. Such trade barriers take the form of tariffs or taxes and generally benefit governments, domestic producers, and national interests at the expense of…
What are Import Quotas? Import quotas are government-imposed limits on the quantity of a certain good that can be imported into a country. Generally speaking, such quotas are put in place to protect domestic industries and vulnerable producers. Quotas prevent a country’s domestic market from becoming flooded with foreign goods, which are often cheaper due…
What is Economic Rent? By definition, economic rent is the difference between the marginal product and opportunity cost. When a firm controls valuable production resources such as land, labor, and capital, it will use the resources to bring it to its optimal production quantity. The optimal quantity is achieved when the firm’s marginal cost is…
What is the Marginal Propensity to Consume? The Marginal Propensity to Consume (MPC) refers to how sensitive consumption in a given economy is to unitized changes in income levels. MPC as a concept works similar to Price Elasticity, where novel insights can be drawn by looking at the magnitude of change in consumption as a…
What is Aggregate Supply and Demand? Aggregate supply and demand refers to the concept of supply and demand but applied at a macroeconomic scale. Aggregate supply and aggregate demand are both plotted against the aggregate price level in a nation and the aggregate quantity of goods and services exchanged at a specified price. Aggregate Supply…
What is the Trade Efficiency Rule? The trade efficiency rule is an economic paradigm where all producers in a global economy specialize in the production of one good. The premise of the rule is that doing so will enable manufacturers to become “experts” at production and thus be able to produce a given good at…
What is a Price Leader? A price leader is a company that exercises control in determining the price of goods and services in a market. The price leader’s actions leave the other competitors with few or no options other than to adjust their prices to match the price set by the price leader. Price leaders…
