The brand of economics that looks at the behaviour of individuals and businesses. In other words, it examines how consumers and businesses react to changes in variables. For example, how do consumers react to price changes and how does quality affect this decision making.
The substitution effect occurs when consumers switch to substitute goods as prices rise. For example, if the price of chicken increases, then consumers may start to switch to substitute goods such as beef or pork.
In economics, incentives are what drives consumer and business behaviour.
An explicit cost is the clearly stated costs that a business incurs. For example, employee wages, inputs, utility bills, and rent, among others. These are the costs which are stated on the businesses balance sheet.
By contrast, implicit costs are those which occur, but are not seen. In other words, these are the costs that are not directly linked to an expenditure. For example, a factory may close down for the day in order for its machines to be serviced.
A fixed cost is a cost that a business must pay whether it produces one good or a million. Regardless of output, it must pay the same amount.
A natural monopoly occurs when there are high fixed costs meaning that it is unprofitable for more than one to be present in the market.
Oligopoly is derived from the Latin ‘olígoi’ – meaning “few”, and ‘pōléō’ – meaning “to sell”. So loosely translated, it means ‘few sellers’. This is a key characteristic of oligopolistic markets as it is defined by a few firms dominating the market.
A tariff is a tax that the government imposes on imported goods.
Supply and demand. Demand and supply. However you call it, they both interact with each other. So what is supply and demand? Simply put, supply and demand relates to the relationship between, the amount of products/services produced, the amount that people want, and the impact that has on prices.
Opportunity cost is the price we pay to take one action over another.
Adverse selection is where one individual in a transaction has more information about the good than the other.
