Definition of ceteris paribus Ceteris paribus is a Latin phrase meaning ‘all other things remaining equal’ The concept of ceteris paribus is important in economics because in the real world it is usually hard to isolate all the different variables. Assuming ceteris paribus allows us to simplify economics – we can understand how something like …
Definition Chicago School – A strand of economic theory highlighting the benefits of free-market economics and critical of Keynesian government intervention The Chicago School of economists originated from the University of Chicago in the 1950s and 1960s. Influential economists such as Milton Friedman and George Stigler helped to define a new reaffirmation of classical / …
This theory suggests that consumer spending patterns are heavily influenced by the way goods are presented. Changing the way goods are sold/presented to a consumer can strongly influence what is bought. Choice architecture is a method to retain consumer sovereignty (the right to choose) but nudging consumers to make certain choices. The idea of choice …
Classical unemployment occurs when real wages are kept above the market-clearing wage rate, leading to a surplus of labour supplied. Classical unemployment is sometimes known as real wage unemployment because it refers to real wages being too high. Diagram Showing Classical Unemployment Classical Unemployment = Q3-Q2. In a free market, the quantity of labour would …
Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather. Assumptions of Cobweb theory In an agricultural market, …
Cognitive bias occurs when an individual person makes an ill-informed decision – often result from past preferences and deeply held beliefs. Cognitive bias means individuals diverge from rational choice and are influenced by non-economic factors, such as emotion and invested opinions. For example, an economist who supports tax cuts is more likely to concentrate on …
A command or planned economy occurs when the government controls all major aspects of the economy and economic production. In a command economy, it is the government that decides what to produce, how to produce goods and how to distribute goods and services within the economy. Command economies were often associated with the political system …
Compensated demand curve A compensated demand curve ignores the income effect of a price change. It only measures the substitution effect. A compensated demand curve is therefore less elastic than an ordinary demand curve. An ordinary demand curve shows the effect of price on quantity demanded. A change in price causes a substitution effect, but …