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…
What is the Marginal Propensity to Consume? The Marginal Propensity to Consume (MPC) refers to how sensitive consumption in a given economy is to unitized changes in income levels. MPC as a concept works similar to Price Elasticity, where novel insights can be drawn by looking at the magnitude of change in consumption as a…
What is Aggregate Supply and Demand? Aggregate supply and demand refers to the concept of supply and demand but applied at a macroeconomic scale. Aggregate supply and aggregate demand are both plotted against the aggregate price level in a nation and the aggregate quantity of goods and services exchanged at a specified price. Aggregate Supply…
What is the Trade Efficiency Rule? The trade efficiency rule is an economic paradigm where all producers in a global economy specialize in the production of one good. The premise of the rule is that doing so will enable manufacturers to become “experts” at production and thus be able to produce a given good at…
What is a Price Leader? A price leader is a company that exercises control in determining the price of goods and services in a market. The price leader’s actions leave the other competitors with few or no options other than to adjust their prices to match the price set by the price leader. Price leaders…
What is a Circular Economy? A circular economy is an economic model designed to minimize resource input, as well as waste and emission production. Circular economy aims to reach the maximum efficiency in the use of finite resources, the gradual transition to renewable resources, and the recovery of materials and products at the end of their…
What is Monetary Policy? Monetary policy is an economic policy that manages the size and growth rate of the money supply in an economy. It is a powerful tool to regulate macroeconomic variables such as inflation and unemployment. These policies are implemented through different tools, including the adjustment of the interest rates, purchase or sale…
What is Frictional Unemployment? Frictional unemployment is a type of unemployment that arises when workers are searching for new jobs or are transitioning from one job to another. It is part of natural unemployment and hence is present even when the economy is considered at full employment. Unlike other kinds of unemployment, frictional unemployment does not increase…
What is Nash Equilibrium? Nash Equilibrium is a game theory concept that determines the optimal solution in a non-cooperative game in which each player lacks any incentive to change his/her initial strategy. Under the Nash equilibrium, a player does not gain anything from deviating from their initially chosen strategy, assuming the other players also keep…
What is Structural Unemployment? Structural unemployment is a category of unemployment caused by differences between the skills possessed by the unemployed population and the jobs available in the market. Structural unemployment is a long-lasting condition that is caused by fundamental changes in the economy. Structural unemployment is a significant problem in economics because of its…
