What is Absolute Advantage? In economics, absolute advantage refers to the capacity of any economic agent, either an individual or a group, to produce a larger quantity of a product than its competitors. Introduced by Scottish economist Adam Smith in his 1776 work, “An Inquiry into the Nature and Causes of the Wealth of Nations,” which described…
What is Roll Yield? Roll yield is a type of return in commodity futures investing. It is driven by the difference in the price of shorter-dated, closer to maturity commodity contracts and their longer-dated counterparts. A futures contract is a promise to either buy or sell a commodity in the future but at a pre-determined…
What are Hard vs Soft Commodities? Before we discuss hard vs soft commodities, let us discuss what a commodity is. The term commodity is an umbrella term for economic goods that are fungible, i.e., can be freely brought and sold. The commodities produced by a country include the raw materials and/or primary agricultural products mined,…
What are Legal Near-Monopolies? To find out about legal near-monopolies, let’s start by discussing monopolies. A monopoly is an organization (typically a company) that is the singular seller of goods or services in a given market. The organization takes over a space in the marketplace, making it impossible for other organizations to come in and…
What is Price Elasticity? Price elasticity refers to how the quantity demanded or supplied of a good changes when its price changes. In other words, it measures how much people react to a change in the price of an item. Price elasticity of demand refers to how changes to price affect the quantity demanded of…
What is Gross Domestic Product (GDP)? Gross Domestic Product (GDP) refers to the total economic output achieved by a country over a period of time. While GDP is generally a good indicator of a country’s economic productivity, financial well-being, and standard of living, it does come with shortcomings. What are the Limitations of Using GDP?…
What are Price Floors and Ceilings? Price floors and price ceilings are government-imposed minimums and maximums on the price of certain goods or services. It is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times. Price floors and ceilings are inherently inefficient and lead to suboptimal consumer and producer…
What is Collateral? Collateral (often referred to as collateral security) is when an asset is pledged to a lender, by a borrower, in support of a credit request. If a loan cannot be repaid or refinanced, a lender may take enforcement action against the borrower’s assets in order to recover the outstanding loan principal plus…
What is Economics of Production? Production refers to the number of units a firm outputs over a given period of time. From a microeconomics standpoint, a firm that operates efficiently should attain sound knowledge of its total product, marginal product, and average product. In practice, firms can utilize the figures as metrics to make better…
What is Gross Domestic Product (GDP)? Gross domestic product (GDP) is a standard measure of a country’s economic health and an indicator of its standard of living. Also, GDP can be used to compare the productivity levels between different countries. The biggest advantage of GDP is that calculations of the measure are fairly uniform across…
