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The parable seeks to show how opportunity costs, as well as the law of unintended consequences, affect economic activity in ways that are unseen or ignored. The belief that destruction is good for the economy is consequently known as the broken window fallacy or glazier's fallacy .
Spoon theory is a metaphor describing the amount of physical or mental energy that a person has available for daily activities and tasks, and how it can become limited. The term was coined in a 2003 essay by American writer Christine Miserandino. In the essay, Miserandino describes her experience with chronic illness, using a handful of spoons ...
Baumol–Tobin model. The Baumol–Tobin model is an economic model of the transactions demand for money as developed independently by William Baumol (1952) and James Tobin (1956). The theory relies on the tradeoff between the liquidity provided by holding money (the ability to carry out transactions) and the interest forgone by holding one’s ...
Definitions. Mathematically, social marginal cost is the sum of private marginal cost and the external costs. For example, when selling a glass of lemonade at a lemonade stand, the private costs involved in this transaction are the costs of the lemons and the sugar and the water that are ingredients to the lemonade, the opportunity cost of the labor to combine them into lemonade, as well as ...
The theory of the firm consists of a number of economic theories that explain and predict the nature of the firm, company, or corporation, including its existence, behaviour, structure, and relationship to the market. [1] Firms are key drivers in economics, providing goods and services in return for monetary payments and rewards.
The negative effects would include an increase in the opportunity cost of holding money, uncertainty over future inflation, which may discourage investment and savings, and, if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future.
In economics, the menu cost is a cost that a firm incurs due to changing its prices. It is one microeconomic explanation of the price-stickiness of the macroeconomy put by New Keynesian economists. [1] The term originated from the cost when restaurants print new menus to change the prices of items. However economists have extended its meaning ...
A loss of $0.05 is perceived with a much greater utility loss than the utility increase of a comparable gain. Loss aversion is a psychological and economic concept, [1] which refers to how outcomes are interpreted as gains and losses where losses are subject to more sensitivity in people's responses compared to equivalent gains acquired. [2]