A merger occurs when two firms join together to form one. The new firm will have an increased market share, which helps the firm gain economies of scale and become more profitable. The merger will also reduce competition and could lead to higher prices for consumers. The main benefit of mergers to the public are: …
Definition of adverse selection Adverse selection occurs when there is asymmetric (unequal) information between buyers and sellers. This unequal information distorts the market and leads to market failure. For example, buyers of insurance may have better information than sellers. Those who want to buy insurance are those most likely to make a claim. Therefore firms …
Definition: The Terms of Trade is the average price of exports / by the average price of imports. It is a measure of a countries relative competitiveness. If export prices rise relative to import prices, we say there has been an improvement in the terms of trade. – A unit of export buys relatively …
A production possibility frontier shows how much an economy can produce given existing resources. A production possibility can show the different choices that an economy faces. For example, when an economy produces on the PPF curve, increasing the output of goods will have an opportunity cost of fewer services. Diagram of Production Possibility Frontier Moving …
The political map of the US increasingly represents a divided America, and this political divide has roots in an increasing economic divide. In brief – rural areas tend to have lower average incomes (though also cheaper rent) higher rates of unemployment, declining population, reliance on one major employer and more concentrated on the primary sector …
Readers question: Who are the winners and losers from free trade? Free trade means that firms can export and import goods without tariff barriers. Free trade leads to lower prices and increased exports and imports. Economists are generally agreed that free trade leads to a net gain in economic welfare; as a result, economists generally …
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 …
The invisible hand is a concept that – even without any observable intervention – free markets will determine an equilibrium in the supply and demand for goods. The invisible hand means that by following their self-interest – consumers and firms can create an efficient allocation of resources for the whole of society. How does the …