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…
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,…
What is a Price Taker? A price taker, in economics, refers to a market participant that is not able to dictate the prices in a market. Therefore, a price taker must accept the prevailing market price. A price taker lacks enough market power to influence the prices of goods or services. Price Takers in a…
What is the Eurozone? All European Union countries that adopted the euro as their national currency form a geographical and economic region known as the Eurozone. The Eurozone forms one of the largest economic regions in the world. Nineteen of the 28 countries in Europe use the euro as their national currency and, thus, it…
What is Gross National Product (GNP)? Gross National Product (GNP) is a measure of the value of all goods and services produced by a country’s residents and businesses. It estimates the value of the final products and services manufactured by a country’s residents, regardless of the production location. GNP is calculated by adding personal consumption…
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…
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…
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…
