Introduction In consumer theory, the Income Consumption Curve (ICC) is an important tool that shows how a consumer’s demand for goods changes as their income changes, keeping prices constant. It helps us understand the relationship between income and consumption patterns. For different types of goods—normal or inferior—the ICC behaves differently. In this answer, we’ll define […]
Introduction Excess capacity is a concept in microeconomics that is often discussed in the context of monopolistic competition. It refers to a situation where a firm produces less than the level of output that minimizes its average total cost. In simpler words, the firm is not using its full productive capacity, meaning that it could
What do you understand by the term “Excess Capacity”? Read More »
Introduction Externalities are an important concept in microeconomics that explain how the actions of individuals or firms can affect third parties who are not directly involved in the activity. These effects can be either positive or negative. When the impact is harmful, it is called a negative externality. Negative externalities lead to market failure because
Introduction Wages are the monetary rewards given to labour for their services. However, not all workers earn the same wages. There are significant variations in wage-rates across different professions such as engineers, doctors, teachers, or factory workers. These wage differences exist due to several economic and non-economic factors. In this answer, we will explain why
Introduction In economics, the term “derived demand” is often used when talking about factors of production such as labour, land, capital, and entrepreneurship. These inputs are not demanded for their own sake, but because they help produce goods and services that people want. Understanding the concept of derived demand helps explain why changes in consumer
The demand for factors is called derived demand. Explain. Read More »
Introduction Economic rent is a key concept in the theory of factor pricing. It refers to the payment made to a factor of production over and above what is required to keep it in its current use. In simple words, it is the extra income earned by a factor due to its unique advantage or
What is economic rent? Discuss the Ricardian theory of economic rent. Read More »
Introduction Oligopoly is a market structure in which a few large firms dominate the market. One of the key characteristics of oligopoly is price rigidity — prices tend to remain stable even when costs or demand change. Economist Paul Sweezy attempted to explain this phenomenon using the Kinked Demand Curve Model. This model is based
Introduction In the Cournot model of duopoly, two firms compete by choosing quantities simultaneously and independently. Each firm chooses its output assuming the other firm’s output is fixed. The goal is to maximise profit given the market demand and cost conditions. Let’s solve the numerical parts of this problem step by step. Given: Market demand:
Introduction In economics, the concept of returns to scale explains how output changes when all inputs are increased in the same proportion. In the long run, all factors of production are variable. Initially, firms may enjoy increasing returns to scale, but beyond a certain point, they often experience diminishing returns to scale. This means that
Give reasons for diminishing returns to scale accruing to a firm in the long run. Read More »
Introduction Monopoly and Perfect Competition are two extreme forms of market structures in economics. While Perfect Competition represents a market with many sellers and buyers dealing in identical products, Monopoly stands for a market where a single seller dominates with no close substitutes. Understanding the differences between these two market structures helps us understand how
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