What is Utility? In the field of economics, utility (u) is a measure of how much benefit consumers derive from certain goods or services. From a finance standpoint, it refers to how much benefit investors obtain from portfolio performance. While it may be intuitive to assume that all investors would like to achieve very high returns,…
What is an Oligopoly? The term “oligopoly” refers to an industry where there are only a small number of firms operating. In an oligopoly, no single firm enjoys a large amount of market power. Thus, no single firm is able to raise its prices above the price that would exist under a perfect competition scenario….
What is the Labor Force? According to the International Labor Organization, a nation’s civil labor force refers to all individuals in a nation that meet the following criteria: Are at ages between 16 to 64 years old Currently with a job or seeking a job Are not serving in the nation’s military Are not pursuing…
What is Nominal vs. Real Gross Domestic Product (GDP)? Nominal Gross Domestic Product (GDP) and Real GDP both quantify the total value of all goods produced in a country in a year. However, real GDP is adjusted for inflation, while nominal GDP isn’t. Thus, real GDP is almost always slightly lower than its equivalent nominal…
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…
