Category: Theme 1
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Government Failure
Government Failure is a phenomenon that occurs when the government’s intervention in the economy or society produces outcomes that are worse than if the government had not intervened at all. Formally defined as ‘When the government intervention leads to an inefficient allocation of resources and a net welfare loss.’ While the government is often seen…
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Auction Theory
Looking into auction theory and the information asymmetries, among other problems, faced. Building on the previous article about information asymmetries, one specific example in which this can happen are auctions – there can be information asymmetries between buyers themselves, as it is unknown how much each potential buyer is willing to pay. So, the buyers…
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Income Elasticity of Demand (YED)
Moving on to look at YED, we will see how demand varies with income and the types of relationships that a YED value can identify. Formally defined, YED, or income elasticity of demand, is the responsiveness of demand to a change in real income. It is calculated by the % change in demand over the…
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Price Elasticity of Supply (PES)
Moving on to the final elasticity, we will look at the responsiveness of supply to changes in price – how much producers will change output in response to a price change. What is PES? As the name suggests, PES measures the responsiveness of supply to a change in price. All economic agents have one main…
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Cross Elasticity of Demand (XED)
Moving on to the final demand elasticity, we will look at XED – how the demand for one good varies based on the price of another. XED, or cross elasticity of demand, observes the responsiveness of demand of good A to a change in the price of good B. This allows us to assess the…
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Price Elasticity of Demand (PED)
Defining the first elasticity of demand: PED PED measures the responsiveness of demand to a change in the price level. As we already know, the demand curve is downwards sloping as at a higher price, consumers demand less of a good (due to diminishing marginal returns). However, this can vary depending on certain factors that…
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UK Economy
Exploring aspects of different types of economies the UK has used in its own market structure One aspect of the free market economy in the UK is allowing competition in various markets, such as the booming financial market located in London, which turned it into a global financial centre. Major banks have their headquarters in…
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How can governments prevent monopolies?
We’ve established what monopolies are – but how do we stop them? Governments prevent monopolies and oligopolies by using anti-trust laws in markets. These stop companies from working together to form oligopolies and maintain competition in the market, such as by forcibly restricting the size of the market share that a company can own through…
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Monopolies
What happens when one company or a group of them take control of the market? A monopoly typically occurs in a free market where competition is encouraged, and in essence, happens when a company has a large enough market share in that particular field that it can control that market, and this means they can…
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Information Asymmetries
Information is very important, so what happens when one party knows more than the other? Asymmetrical information is when one party knows more about the good or service being purchased than the other, resulting in the other party not receiving a product or payment of equal value to their product or payment. For example, a…
Economics 101 