Definition of asymmetric information: This is a situation where there is imperfect knowledge. In particular, it occurs where one party has different information to another. A good example is when selling a car, the owner is likely to have full knowledge about its service history and its likelihood to break-down. The potential buyer, by contrast, …
Complementary goods are products which are used together. Examples DVD player and DVD disks to play in it. Tennis balls and tennis rackets. Mobile phones and mobile phone credit for making calls. iPhone and Apps to use with an iPhone. Petrol and car. Complementary Goods and Cross Elasticity of Demand Complementary goods will have a …
A recession is a period of negative economic growth. In a recession, we see falling real GDP, falling average incomes and rising unemployment. This graph shows US economic growth 2001-2016. The period 2008-09 shows the deep recession, where real GDP fell sharply. Other things we are likely to see in a recession 1. Unemployment The …
An explanation of the difference between horizontal and vertical equity. Horizontal equity implies that we give the same treatment to people in an identical situation. E.g. if two people earn £15,000 they should both pay the same amount of income tax (e.g. £2,500). Horizontal equity makes sure we don’t have discrimination on the grounds such …
The fundamental economic problem is one of scarcity. The basic questions of economics become: What to produce? How to produce? For whom to produce? You could also add When to produce? What to produce? Given limited resources of labour, raw materials and time, economic agents have to decide what to produce. Most primitive economies …
Monopoly Graph A monopolist will seek to maximise profits by setting output where MR = MC This will be at output Qm and Price Pm. Compared to a competitive market, the monopolist increases price and reduces output Red area = Supernormal Profit (AR-AC) * Q Blue area = Deadweight welfare loss (combined loss of producer …
The government may wish to regulate monopolies to protect the interests of consumers. For example, monopolies have the market power to set prices higher than in competitive markets. The government can regulate monopolies through: Price capping – limiting price increases Regulation of mergers Breaking up monopolies Investigations into cartels and unfair practises Nationalisation – government …
Definition – Price discrimination involves charging a different price to different groups of people for the same good. For example – student discounts, off peak fares cheaper than peak fares. Different Types of Price Discrimination 1. First Degree Price Discrimination This involves charging consumers the maximum price that they are willing to pay. There will …