Free Rider
What is a Free Rider? A free rider is a person who benefits from something without expending effort or paying for it. In other words, free riders are those who utilize goods without paying for their use. The Free Rider Problem The free rider problem is an economic concept of a market failure that occurs…
Cost Allocation
What is Cost Allocation? Cost allocation is the process of identifying, accumulating, and assigning costs to costs objects such as departments, products, programs, or a branch of a company. It involves identifying the cost objects in a company, identifying the costs incurred by the cost objects, and then assigning the costs to the cost objects…
Deadweight Loss
What is Deadweight Loss? Deadweight loss refers to the loss of economic efficiency when the equilibrium outcome is not achievable or not achieved. In other words, it is the cost born by society due to market inefficiency. Video Explanation of Deadweight Loss Below is a short video tutorial that describes what deadweight loss is, provides…
Barriers to Entry
What are Barriers to Entry? Barriers to entry are the obstacles or hindrances that make it difficult for new companies to enter a given market. These may include technology challenges, government regulations, patents, start-up costs, or education and licensing requirements. American economist Joe S. Bain gave the definition of barriers to entry as “an advantage of…
Economic Indicators
What are Economic Indicators? An economic indicator is a metric used to assess, measure, and evaluate the overall state of health of the macroeconomy. Economic indicators are often collected by a government agency or private business intelligence organization in the form of a census or survey, which is then analyzed further to generate an economic…
Substitute Products
What are Substitute Products? Substitute products offer consumers choices when making purchase decisions by providing equally good alternatives, thus increasing utility. However, from a company’s perspective, substitute products create a rivalry. As a result, businesses may incur high marketing and promotional costs when competing for market share, which, in turn, reduces operating profits. Some companies are…
Business Cycle
What is a Business Cycle? A business cycle is a cycle of fluctuations in the Gross Domestic Product (GDP) around its long-term natural growth rate. It explains the expansion and contraction in economic activity that an economy experiences over time. A business cycle is completed when it goes through a single boom and a single…
Balance of Payments
What is the Balance of Payments? The Balance of Payments is a statement that contains the transactions made by residents of a particular country with the rest of the world over a specific time period. It is also known as the balance of international payments and is often abbreviated as BOP. It summarizes all payments…
Diseconomies of Scale
What are Diseconomies of Scale? Diseconomies of scale occur when an additional production unit of output increases marginal costs, which results in reduced profitability. Instead of production costs declining as more units are produced (which is the case with economies of scale), the opposite happens, and costs increase with the production of each additional unit….
