Comparative advantage occurs when one country can produce a good or service at a lower opportunity cost than another. This means a country can produce a good relatively cheaper than other countries The theory of comparative advantage states that if countries specialise in producing goods where they have a lower opportunity cost – then there …
Status Quo bias is an emotional preference for the current situation. In economics, status quo bias can cause individuals to make seemingly non-rational decisions to stay with a sub-optimal situation. For example, over a lifetime, it is rational to save for a pension. However, some individuals may have a reluctance to change their current situation …
Variable costs are costs which change with output. As output increases the firm needs to use more raw materials and employ more workers. These costs vary with changes in the output. Variable costs exclude the fixed costs which are independent of output produced. Examples of variable costs Raw materials. Aluminium, plastic, rubber, coffee beans. All …
An indirect tax is charged on producers of goods and services and is paid by the consumer indirectly. Examples of indirect taxes include VAT, excise duties (cigarette, alcohol tax) and import levies. Example of VAT as an indirect tax VAT rates may be set at 20%. This percentage tax is known as an ad Valorem …
A fixed cost is a business cost that is unrelated to output. They can also be referred to as ‘indirect costs’ Whatever the output fixed costs (FC) remains constant at £300. Average fixed cost (AFC) declines with increased output Examples of fixed cost Rent on premise Cost of buying machines and factories. Salaries of managers …
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 …
Joint supply occurs when two goods are produced together from the same origin / raw material. Examples of joint supply If you grow wheat, you get both wheat and straw. Producing refined flour creates bran as a byproduct. Bran can be used as fibre ingredient or using in compost If you increase the supply of …
What would be the impact of the US placing a tariff on the import of steel and aluminium into the US A tariff on imports of foreign steel would raise the price of imported steel and encourage US firms and consumers to buy domestically produced steel instead. At the moment, American producers find it cheaper …