This is an aspect of consumer behaviour theory which states consumers will stick with regular spending patterns and we are much more likely to choose the easiest option we are given In the real world, we often purchase the goods/services that are presented as the automatic default choice. – We don’t take option to opt-out …
There are two main classifications of poverty: Absolute poverty – income below certain income necessary for basic living standards Relative poverty – household income 60% below median wages. See: Measuring poverty Absolute poverty was much more of an issue before the introduction of the Welfare State in 1945. Since 1945, rising living standards and a …
Earlier in the year, Sony reduced the price of its PlayStation VR bundle from $499 to $449, a significant 10% reduction in price. Given there is significant brand loyalty towards PlayStation (and inelastic demand), what are the possible economic reasons behind cutting the price? Complementary products One very strong reason is to make profit from …
Demand for labour is a derived demand. This means it depends on demand for the product the worker is producing. If there is an increase in demand for visiting coffee shops, it will lead to an increase in demand for baristas (people who make coffee) The demand for labour will also depend on labour productivity, …
A look at the advantages and benefits of free trade. Readers Question: Why isn’t trade among countries like a game with some winners and some losers? Often in the political world, trade is seen as a game of tit for tat. e.g. the US places tariffs on imports of Chinese chickens; China retaliates by placing …
Companies often offer student discounts – from 10% to 50% off. What is the logic behind this student discount – is it compassionate pricing for hard-up students or is there good economic logic to increase profits for firms? Charging different prices to different groups of consumers is known as price discrimination. The idea is that …
A negative externality is a cost imposed on a third party from producing or consuming a good. This is a diagram for negative production externality. This shows the divergence between the private marginal cost of production and the social marginal cost of production. A negative externality leads to overconsumption and deadweight welfare loss. Diagram for …