Definition of allocative efficiency This occurs when there is an optimal distribution of goods and services, taking into account consumer’s preferences. A more precise definition of allocative efficiency is at an output level where the Price equals the Marginal Cost (MC) of production. This is because the price that consumers are willing to pay is …
This is an example of applied economics. Two different personal cases of outsourcing work. Outsourcing web-development I had a job for website development – make a menu of my other website on biographies more mobile friendly. I could have tried to do it myself, but it would have taken several hours. I’m better off specialising …
Classical economic theory assumes that individuals are rational. However, in the real world, we often see irrational behaviour – decisions which don’t maximise utility but can cause a loss of economic welfare. Irrational behaviour is not just isolated to a few ‘irrational individuals’ but can become the dominant choice for most people in society (e.g. …
Due to lack of space in the book, we have published full bibliography on this website. Bibliography Chapter 1 Is it OK to be selfish? Frank, R H (1988) Passions Within Reason: The Strategic Role of the Emotions, p. xi. New York: W W Norton & Co. Galbraith, J K (1982) “Recession economics”, The New …
In behavioural economics, studies have suggested individuals value the concept of reciprocity. If people are kind to us, we have a greater tendency to respond in kind – behaving more altruistically than self-interest theory suggests. Reciprocity can also work in a negative sense, with agents willing to ‘punish’ those who abuse the ‘rules of the …
Homo Economicus is a hypothetical concept that humans are: Self-interested Know what they want Make rational choices to maximise their utility. These choices are based on the concept of marginal utility. This concept of a rational economic man is an important cornerstone of neo-classical economic theory. It creates a framework to model how consumers and …