Definition of Dynamic Efficiency Dynamic efficiency is concerned with the productive efficiency of a firm over a period of time. A firm which is dynamically efficient will be reducing its cost curves by implementing new production processes. Dynamic efficiency will enable a reduction in both SRAC and LRAC. Diagram showing dynamic efficiency Therefore dynamic efficiency …
A look at the economic impact of a fall in the exchange rate (termed depreciation or devaluation) A fall in the exchange rate is known as a depreciation in the exchange rate (or devaluation in a fixed exchange rate system). It means the currency is worth less compared to other countries. When there is a …
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 …
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 …
A current account deficit occurs when the value of imports (of goods/services/inv. incomes) is greater than the value of exports. Policies to reduce a current account deficit involve: Devaluation of exchange rate (make exports cheaper – imports more expensive) Reduce domestic consumption and spending on imports (e.g. tight fiscal policy/higher taxes) Supply side policies to …
If the price of a good increases, then there will be two different effects – known as the income and substitution effect. If a good increases in price The good is relatively more expensive than alternative goods, and therefore people will switch to other goods which are now relatively cheaper. (substitution effect) – The increase in …
Readers Question: Explain with the help of diagrams the equilibrium of a firm having monopoly power in the market in the short-run and long-run? The diagram for a monopoly is generally considered to be the same in the short run as well as the long run. Profit maximisation occurs where MR=MC. Therefore the equilibrium is …
Readers Question: what are the advantages and disadvantages of inflation? Inflation occurs when there is a sustained increase in the general price level. Traditionally high inflation rates are considered to be damaging to an economy. High inflation creates uncertainty and can wipe away the value of savings. However, most Central Banks target an inflation rate …