A Pigovian tax is a tax placed on any good which creates negative externalities. The aim of a Pigovian tax is to make the price of the good equal to the social marginal cost and create a more socially efficient allocation of resources. It is named after the economist Arthur Pigou who developed the concept …
The policy trilemma refers to the trade-offs a government faces when deciding international monetary policy. In particular, the policy trilemma contends that it is not possible to have all three objectives at the same time, but has to choose two from the following three options: Free movement of capital Independent (autonomous) monetary policy Fixed (managed) …
Definition of Predatory Pricing Predatory pricing occurs when a firm sells a good or service at a price below cost (or very cheaply) with the intention of forcing rival firms out of business. Predatory pricing could be a method to deal with new firms who enter an industry. If a monopoly is enjoying supernormal profits, …
Premium decoy pricing is when a firm set the price of one good deliberately high in order to make other goods appear good value and attractive. For example, a clothes shop may have a few jackets priced at £300. This gives the impression that the clothing brand is high quality. Then they may offer a …
Premium pricing is a marketing tool to set higher prices for certain goods in the hope that the higher price will give the impression the good is of a higher quality. Premium pricing may be applied to similar goods, where there is a slight increase in quality. Examples of premium pricing ‘Premium unleaded petrol’ Premium …
Present bias occurs when individuals place a greater value on goods/income achieved in the present moment – rather than receiving the same goods/income in the future. It suggests given a choice between a payoff today and a pay off in the future; we will choose to have the pay off now. It suggests that people …
This occurs when a firm or consumer has no option but to accept the price set by the market. When a firm is a price taker – it means they have no ability to set a price that they would like to charge. A price taker will lack market power. Conditions for being a price …
On the current account balance of payments. Primary income Primary income is defined as earnings arising from the provision of a factor of production: labour, financial assets, land, and natural resources This includes Income from interest, profits, and dividends (generated from foreign investment). Compensation of employees Taxes and subsidies on products and production (e.g., sales …