Definition of asymmetric information: This is a situation where there is imperfect knowledge. In particular, it occurs where one party has different information to another. A good example is when selling a car, the owner is likely to have full knowledge about its service history and its likelihood to break-down. The potential buyer, by contrast, …
A recession is a period of negative economic growth. In a recession, we see falling real GDP, falling average incomes and rising unemployment. This graph shows US economic growth 2001-2016. The period 2008-09 shows the deep recession, where real GDP fell sharply. Other things we are likely to see in a recession 1. Unemployment The …
Readers question: What are the functions of government in a capitalist economy? In summary, the economic functions of a government include: Protection of private property and maintaining law and order / national defence. Raising taxes. Providing public services not provided in a free market (e.g. health care, education, street lighting) Limit market failure through the …
The main objectives of firms are: Profit maximisation Sales maximisation Increased market share/market dominance Social/environmental concerns Profit satisficing Co-operatives Business Objectives of firmsWatch this video on YouTube Sometimes there is an overlap of objectives. For example, seeking to increase market share, may lead to lower profits in the short-term, but enable profit maximisation in the …
Readers Question: Could you give a summary of Keynesian and Classical views? Summary Classical economics emphasises the fact that free markets lead to an efficient outcome and are self-regulating. In macroeconomics, classical economics assumes the long run aggregate supply curve is inelastic; therefore any deviation from full employment will only be temporary. The Classical model …
A shift in demand means at the same price, consumers wish to buy more. A movement along the demand curve occurs following a change in price. Movement along the demand curve A change in price causes a movement along the demand curve. It can either be contraction (less demand) or expansion/extension. (more demand) Contraction in …
What does it mean to talk of labour market slack? And how is it measured? Essentially labour market slack is the shortfall between the volume of work desired by workers and the actual volume of work available. Labour market slack also determines the difficulty or ease of employing more workers. When there is labour market …
The World Bank publishes several measures of global poverty, which measure poverty by different levels of income. The most common is the percentage of the population who live on less than $1.90 a day. This is a measure of absolute poverty. There are also measures of relative poverty which compare income against the national average. …