The income effect measures the impact of changes in purchasing power on demand. It can be positive or negative.We measure the purchasing power of consumers from real income, namely nominal income, after adjusting for the price of the goods. It is
Economic Context
Market Structure: Meaning, Types, Characteristics, How to Determine
Market structure refers to the characteristics of market organizations that determine the behavior of companies in an industry. It determines the nature of competition and price and has implications for the market share and profits that companies
What is the Law of Demand? How does it work?
What's it: The law of demand is a principle in microeconomics, stating a negative relationship between a good's price and its quantity demanded. The quantity demanded increases when the price falls, assuming other factors are unchanged
Monetarist View: How Money Supply Impacts Growth and Inflation
Monetarists refer to economists who hold a strong belief that changes in the money supply are the main determinants of economic performance and business cycle behavior. In their argument, the economic health of a country depends on monetary supply or
Keynesian Economics: Core Concepts, Government Role During Business Cycle
Keynesian Economics revolutionized the way we perceive and understand economic fluctuations and the role of government intervention. Developed by the influential economist John Maynard Keynes in the aftermath of the Great Depression, this influential
Reserve Requirement: Bank “Vault Cash” & Money Supply – Impacts
Reserve requirement is a regulation that commercial banks must follow. It dictates a specific portion of customer deposits that banks are obligated to hold onto as reserves. These reserves cannot be used for lending and function as a safety net for
Fiscal Policy Explained – A Guide for Students and Investors [Tools, Pros, Cons]
Fiscal policy plays a central role in shaping a nation's economic health. It's a set of government actions that directly influence the economy through adjustments to government spending and tax rates. This guide dives deep into the world of fiscal
Fiscal Stance Explained: How Gov’t Spending Affects Economy
Fiscal stance is a crucial concept in economics that refers to how a government uses its spending and tax policies to influence the overall health of the economy. In simpler terms, it's about how a government decides to allocate its budget to steer
Floating Exchange Rates: Freedom & Fluctuations Explained Simply (Pros, Cons)
A floating exchange rate refers to an exchange rate system in which supply-demand on the foreign exchange (forex) market determines the price of a country's currency. The government does not intervene in the market at all to influence the exchange
Economics: Key Concepts and Its Importance
Economics is a social science about the allocation of scarce resources to meet unlimited human needs. It discusses production, consumption, and distribution. In a broader scope, it also discusses the variables that explain and influence the working
Minimum Efficient Scale: How It Works
Minimum efficient scale is the lowest point where the long-term average cost is at the minimum point. Prior to this point, the increase in production will be at a reduced average cost (economies of scale). And after that point, the average cost
Market Supply: Meaning, Determinans, How It is Calculated
The market supply represents the total quantity of goods or services that producers are willing to supply at a specific price and time. That is the sum of all individual producer supply.How to determine the market supplyWe calculate market