What are Transaction Costs? Transaction costs are costs incurred that don’t accrue to any participant of the transaction. They are sunk costs resulting from economic trade in a market. In economics, the theory of transaction costs is based on the assumption that people are influenced by competitive self-interest. At the highest level, only markets exist,…
What is Dutch Disease? Dutch disease is a concept that describes an economic phenomenon where the rapid development of one sector of the economy (particularly natural resources) precipitates a decline in other sectors. It is also often characterized by a substantial appreciation of the domestic currency. Dutch disease is a paradoxical situation where good news…
What are Non-Rivalrous Goods? Non-rivalrous goods are public goods that are consumed by people but whose supply is not affected by people’s consumption. In other words, when an individual or a group of individuals use a particular good, the supply left for other people to use remains unchanged. Therefore, non-rivalrous goods can be consumed over…
What are Non-Excludable Goods? Non-excludable goods refer to public goods that cannot exclude a certain person or group of persons from using such goods. As a result, restricting access to the consumption of non-excludable goods is nearly impossible. For example, a public road allows practically everyone to use it regardless of the type of motor…
What are Public Goods? Public goods are goods that are commonly available to all people within a society or community and that possess two specific qualities: they are non-excludable and non-rivalrous. Everyone has access to use them, and their use does not deplete their availability for future use. Non-excludability – Individuals or groups of individuals…
What are Club Goods? In economics, club goods – also sometimes referred to as scarce or artificially scarce goods – are a subset of public goods that possess one of the two key factors that public goods carry – namely, being non-rivalrous. Characteristics of Club Goods Club goods are non-rivalrous, so they’re not in danger…
What are Flow of Funds Indicators? The flow of funds indicators are metrics used by governments to track the flow of money to and from the national economy. The accounts show the sources of all funds received in the economy and the uses they have been put to in the economy. The national government, investors,…
What are Common-Pool Resources (CPRs)? Common-pool resources (CPRs), also referred to as common goods, are goods that typically possess a natural or constructed system of resources. CPRs are non-excludable, meaning that individuals or populations typically can’t be prevented from using them, even if they aren’t paying for them. They are, however, rivalrous, meaning that their…
What is Standardization? Standardization is the process of creating protocols to guide the creation of a good or service based on the consensus of all the relevant parties in the industry. The standards ensure that goods or services produced in a specific industry come with consistent quality and are equivalent to other comparable products or…
What are Economies of Scale? Economies of scale refer to the cost advantage experienced by a firm when it increases its level of output. The advantage arises due to the inverse relationship between the per-unit fixed cost and the quantity produced. The greater the quantity of output produced, the lower the per-unit fixed cost. Economies…
