The equimarginal principle states that consumers will choose a combination of goods to maximise their total utility. This will occur where The consumer will consider both the marginal utility MU of goods and the price. In effect, the consumer is evaluating the MU/price. This is known as the marginal utility of expenditure on each item …
The demand curve shows the amount of goods consumers are willing to buy at each market price. An individual demand curve shows the quantity of the good, a consumer would buy at different prices. Plotting price and quantity supply Market equilibrium More demand curves Related Factors affecting demand Demand …
Definition of beggar my neighbour policy: This is an economic policy that seeks to promote a country’s economy at the expense of another country. It assumes that economics is a zero-sum game. In other words, if you want more income, you have to take it from other countries. It should be noted that most economists …
Barriers to entry are factors that make it difficult for new firms to enter the market. Barriers to entry will make a market less competitive. If barriers to entry are very high then the market will invariably become a monopoly. Examples of barriers to entry Tap water – Economies of Scale. This means as firms …
This is a theory which estimates the likely utility of an action – when there is uncertainty about the outcome. It suggests the rational choice is to choose an action with the highest expected utility. This theory notes that the utility of a money is not necessarily the same as the total value of money. …
Definition – An external benefit occurs when producing or consuming a good causes a benefit to a third party. The existence of external benefits (positive externalities) means that social benefit will be greater than private benefit. Example of external benefit In this example, of cycling to work, there is Private benefit We save on a …
Definition of External costs An external cost occurs when producing or consuming a good or service imposes a cost (negative effect) upon a third party. If there are external costs in consuming a good (negative externalities), the social costs will be greater than the private cost. The existence of external costs can lead to market …
Definition – External economies of scale occur when a whole industry grows larger and firms benefit from lower long-run average costs. External economies of scale can also be referred to as positive external benefits of industrial expansion. Individual firm experiencing economies of scale from a larger industry Why do external economies of scale occur? Cluster …