One of the first lessons in economics is the idea of opportunity cost. If you pursue one choice, it means you can’t do another option. The government faces countless decisions based on this. For example, the government could spend more on health care, but the opportunity cost would be lower spending on education. We could …
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 …
After a decade of secular stagnation in the west and ultra-low interest rates – from an economic perspective, the Turkish economy is ‘interesting’ in the sense that it gives a very different set of economic circumstances. An economic boom with parallels and similarities to the 1997-98 Asian Crisis. Since 2000, the Turkish economy has grown …
Capital goods are fixed assets which are used in the productive process in order to produce a finished ‘consumer’ good. Capital goods are not bought for their own utility; they are bought in order to be used in the productive process. Examples of Capital Goods Factories Offices Machines Printing press Combine harvester Assembly line In …
Readers Question: To what extent is it necessary for the government in a developing country over-reliant on tourism to consider the expansion or agriculture and manufacturing? In theory, the law of comparative advantage states that you should specialise in producing the goods and services where you have a comparative advantage (can produce at the lower …
Readers Question: should the government build houses itself, encourage the private sector to build more houses, or play no part in the housing market at all? (justify your answer) Arguments for Government Building Houses House prices are currently too high due to a shortage of supply. If the government increase the supply it will help …
Definition: Gross fixed capital formation is essentially net investment. It is a component of the Expenditure method of calculating GDP. To be more precise Gross fixed capital formation measures the net increase in fixed capital. Gross fixed capital formation includes spending on land improvements, (fences, ditches, drains, and so on) plant, machinery, and equipment purchases; …
If countries specialize in the production of certain goods and then trade with other countries there will be an increase in economic welfare. Countries will specialize in those goods where they have a comparative advantage. Absolute Advantage This occurs when one country can produce a good with fewer resources than another. E.G. if USA can …