How to Calculate Consumer Surplus Consumer surplus is an economic measurement to calculate the benefit (i.e., surplus) of what consumers are willing to pay for a good or service versus its market price. The consumer surplus formula is based on an economic theory of marginal utility. The theory explains that spending behavior varies with the…
What is Gross Domestic Product (GDP)? Gross Domestic Product (GDP) is an economics term for the total value of all final economic goods and services produced in a country during a specific period of time in local currency. It is the broadest financial measurement of a nation’s total economic activity and encompasses the total goods…
What is a Dead Hand Provision? A dead hand provision is a type of poison pill that massively dilutes the shares of the target company during a hostile takeover attempt. When an acquirer buys a stake in the target company, rights automatically issue, allowing the shareholders of the target to buy newly issued shares at…
What is Accounting Depreciation vs Tax Depreciation? Before we discuss accounting depreciation vs tax depreciation, let us first talk about depreciation itself. Essentially, depreciation is a method of allocating the cost of a tangible asset over several periods of time due to decreases in the fair value of the asset. Note that amortization is a…
What are the Laws of Supply and Demand? The laws of supply and demand are microeconomic concepts that state that in efficient markets, the quantity supplied of a good and quantity demanded of that good are equal to each other. The price of that good is also determined by the point at which supply and…
What is Capitalism? Capitalism is an economic system that allows for and encourages the private ownership of businesses that operate to generate profit. Also known as the market system, capitalism is characterized by private land ownership rights, competitive markets, the stable rule of law, freely operating capital markets, low corruption, and a price discovery process….
What is a Horizontal Market? A Horizontal Market is a market that is present in a wide range of industries. A business operating in a horizontal market will have consumers and purchasers across different sectors of the economy. So, a business that sells to multiple industries is in a horizontal market. The Office Supplies market…
What is Supplier Power? In Porter’s Five Forces, supplier power is the degree of control a provider of goods or services can exert on its buyers. Supplier power is linked to the ability of suppliers to increase prices, decrease quality, or limit the number of products they will sell. Usually, the number of suppliers of…
What is Inflation? Inflation is an economic concept that refers to an increase in the price level of goods over a specified period. The rise in the price level signifies that the currency in a given economy loses purchasing power (i.e., less can be bought with the same amount of money). The causes of inflation…
What is Stagflation? Stagflation is an economic event in which the inflation rate is high, economic growth rate slows, and unemployment remains steadily high. Such an unfavorable combination is feared and can be a dilemma for governments since most actions designed to lower inflation may raise unemployment levels, and policies designed to decrease unemployment may…
