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Pages in category "Economics curves"
The following 40 pages are in this category, out of 40 total. This list may not reflect recent changes (learn more).
|Wikimedia Commons has media related to Economic curves.|
The following 40 pages are in this category, out of 40 total. This list may not reflect recent changes (learn more).
1. Supply and demand – In microeconomics, supply and demand is an economic model of price determination in a market. By contrast, responses to changes in the price of the good are represented as movements along unchanged supply, a supply schedule is a table that shows the relationship between the price of a good and the quantity supplied. Under the assumption of perfect competition, supply is determined by marginal cost and that is, firms will produce additional output while the cost of producing an extra unit of output is less than the price they would receive. A hike in the cost of raw goods would decrease supply, shifting costs up, while a discount would increase supply, shifting costs down, by its very nature, conceptualizing a supply curve requires the firm to be a perfect competitor. This is true because each point on the curve is the answer to the question If this firm is faced with this potential price, how much output will it be able to. Economists distinguish between the curve of an individual firm and between the market supply curve. The market supply curve is obtained by summing the quantities supplied by all suppliers at each potential price, thus, in the graph of the supply curve, individual firms supply curves are added horizontally to obtain the market supply curve. Economists also distinguish the market supply curve from the long-run market supply curve. In this context, two things are assumed constant by definition of the run, the availability of one or more fixed inputs. In the long run, firms have a chance to adjust their holdings of physical capital, furthermore, in the long run potential competitors can enter or exit the industry in response to market conditions. For both of these reasons, long-run market supply curves are generally flatter than their short-run counterparts, the determinants of supply are, Production costs, how much a goods costs to be produced. Production costs are the cost of the inputs, primarily labor, capital, energy and they depend on the technology used in production, and/or technological advances. Following the law of demand, the curve is almost always represented as downward-sloping, meaning that as price decreases. Just like the supply curves reflect marginal cost curves, demand curves are determined by marginal utility curves, the demand schedule is defined as the willingness and ability of a consumer to purchase a given product in a given frame of time. It is aforementioned, that the curve is generally downward-sloping. Two different hypothetical types of goods with upward-sloping demand curves are Giffen goods, by its very nature, conceptualizing a demand curve requires that the purchaser be a perfect competitor—that is, that the purchaser has no influence over the market price. This is true because each point on the curve is the answer to the question If this buyer is faced with this potential price. If a buyer has market power, so its decision of how much to buy influences the price, then the buyer is not faced with any price
2. Yield curve – In finance, the yield curve is a curve showing several yields or interest rates across different contract lengths for a similar debt contract. The curve shows the relation between the interest rate and the time to maturity, known as the term, of the debt for a borrower in a given currency. More formal mathematical descriptions of this relation are called the term structure of interest rates. The shape of the yield curve indicates the cumulative priorities of all relative to a particular borrower. With other factors held equal, lenders will prefer to have funds at their disposal, the interest rate is the price paid to convince them to lend. As the term of the loan increases, lenders demand an increase in the interest received, the yield of a debt instrument is the overall rate of return available on the investment. In general the percentage per year that can be earned is dependent on the length of time that the money is invested. For example, a bank may offer a savings rate higher than the normal checking account rate if the customer is prepared to leave money untouched for five years, investing for a period of time t gives a yield Y. This function Y is called the yield curve, and it is often, but not always, Yield curves are used by fixed income analysts, who analyze bonds and related securities, to understand conditions in financial markets and to seek trading opportunities. Economists use the curves to understand economic conditions, the yield curve function Y is actually only known with certainty for a few specific maturity dates, while the other maturities are calculated by interpolation. Yield curves are usually upward sloping asymptotically, the longer the maturity, there are two common explanations for upward sloping yield curves. First, it may be that the market is anticipating a rise in the risk-free rate, if investors hold off investing now, they may receive a better rate in the future. Another explanation is that longer maturities entail greater risks for the investor, a risk premium is needed by the market, since at longer durations there is more uncertainty and a greater chance of catastrophic events that impact the investment. This explanation depends on the notion that the faces more uncertainties in the distant future than in the near term. This effect is referred to as the liquidity spread, if the market expects more volatility in the future, even if interest rates are anticipated to decline, the increase in the risk premium can influence the spread and cause an increasing yield. The opposite position can also occur, for instance, in November 2004, the yield curve for UK Government bonds was partially inverted. The yield for the 10-year bond stood at 4. 68%, the markets anticipation of falling interest rates causes such incidents. Strongly inverted yield curves have historically preceded economic depressions, the yield curve may also be flat or hump-shaped, due to anticipated interest rates being steady, or short-term volatility outweighing long-term volatility
3. Laffer curve – In economics, the Laffer curve is a representation of the relationship between rates of taxation and the resulting levels of government revenue. Proponents of the Laffer curve claim that it illustrates the concept of taxable income elasticity—i. e, taxable income will change in response to changes in the rate of taxation. The Laffer curve postulates that no tax revenue will be raised at the tax rates of 0% and 100%. The shape of the curve is uncertain and disputed, one implication of the Laffer curve is that increasing tax rates beyond a certain point will be counter-productive for raising further tax revenue. A hypothetical Laffer curve for any given economy can only be estimated, the New Palgrave Dictionary of Economics reports that estimates of revenue-maximizing tax rates have varied widely, with a mid-range of around 70%. The term Laffer curve was coined by Jude Wanniski, who was present at the meeting. The basic concept was not new, Laffer himself notes antecedents in the writings of the 14th-century social philosopher Ibn Khaldun, Laffer explains the model in terms of two interacting effects of taxation, an arithmetic effect and an economic effect. The arithmetic effect assumes that tax revenue raised is the tax rate multiplied by the revenue available for taxation, thus revenue R is equal to t×B where t is the tax rate and B is the taxable base. At a 0% tax rate, the model assumes that no tax revenue is raised, the economic effect assumes that the tax rate will affect the tax base itself. Thus, the effect of a 100% tax rate is to decrease the tax base to zero. If this is the case, then somewhere between 0% and 100% lies a tax rate that will maximize revenue, similarly, the curve is often presented as a parabolic shape, but there is no reason that this is necessarily the case. The effect of changes in tax can be cased in terms of elasticities, thus as elasticity surpasses one absolute value, revenues begin to fall. The problem is similar to that of the monopolist who must never increase prices beyond the point at which the elasticity of demand exceeds one in absolute value. Wanniski noted that all activity would be unlikely to cease at 100% taxation. He also noted that there can be special circumstances in which economic activity can continue for a period at a near 100% taxation rate, various efforts have been made to quantify the relationship between tax revenue and tax rates. While the interaction between tax rates and tax revenue is generally accepted, the nature of this interaction is debated. In practice, the shape of a hypothetical Laffer curve for an economy can only be estimated. The relationship between tax rate and tax revenue is likely to vary from one economy to another and depends on the elasticity of supply for labor, even in the same economy, the characteristics of the curve could vary over time
4. Phillips curve – Stated simply, decreased unemployment, in an economy will correlate with higher rates of inflation. While there is a short run tradeoff between unemployment and inflation, it has not been observed in the long run, in 1968, Milton Friedman asserted that the Phillips curve was only applicable in the short-run and that in the long-run, inflationary policies will not decrease unemployment. Friedman then correctly predicted that in the 1973–75 recession, both inflation and unemployment would increase, the long-run Phillips curve is now seen as a vertical line at the natural rate of unemployment, where the rate of inflation has no effect on unemployment. In the paper Phillips describes how he observed a relationship between money wage changes and unemployment in the British economy over the period examined. In the 1920s, an American economist Irving Fisher noted this kind of Phillips curve relationship, however, Phillips original curve described the behavior of money wages. One implication of this for government policy was that governments could control unemployment and they could tolerate a reasonably high rate of inflation as this would lead to lower unemployment – there would be a trade-off between inflation and unemployment. For example, monetary policy and/or fiscal policy could be used to stimulate the economy, raising gross domestic product, moving along the Phillips curve, this would lead to a higher inflation rate, the cost of enjoying lower unemployment rates. Economist James Forder argues that view is historically false and that neither economists nor governments took that view. Since 1974, seven Nobel Prizes have been given to economists for, among other things, some of this criticism is based on the United States experience during the 1970s, which had periods of high unemployment and high inflation at the same time. The authors receiving those prizes include Thomas Sargent, Christopher Sims, Edmund Phelps, Edward Prescott, Robert A. Mundell, Robert E. Lucas, Milton Friedman, in the 1970s, many countries experienced high levels of both inflation and unemployment also known as stagflation. Theories based on the Phillips curve suggested that this could not happen, Friedman argued that the Phillips curve relationship was only a short-run phenomenon. In this he followed eight years after Samuelson and Solow who wrote All of our discussion has been phrased in short-run terms, dealing with what might happen in the next few years. It would be wrong, though, to think that our Figure 2 menu that related obtainable price, what we do in a policy way during the next few years might cause it to shift in a definite way. Unemployment would then begin to back to its previous level. This result implies that over the there is no trade-off between inflation and unemployment. This implication is significant for practical reasons because it implies that central banks should not set employment targets above the natural rate, more recent research has shown that there is a moderate trade-off between low-levels of inflation and unemployment. Work by George Akerlof, William Dickens, and George Perry and this is because workers generally have a higher tolerance for real wage cuts than nominal ones. For example, a worker will more likely accept an increase of two percent when inflation is three percent, than a wage cut of one percent when the inflation rate is zero
5. J curve – A J curve is any of a variety of J-shaped diagrams where a curve initially falls, then steeply rises above the starting point. In economics, the J curve refers to the trend of a trade balance following a devaluation or depreciation under a certain set of assumptions. A devalued currency means imports are expensive, and on the assumption that the volume of imports and exports change little immediately. After some time, though, the volume of exports may start to rise because of their lower more competitive prices to foreign buyers, eventually, if this happens, the trade balance should improve on what it was before the devaluation. Likewise, if there is a currency revaluation or appreciation the same reasoning may be applied, moreover, in the short run, demand for the more expensive imports remain price inelastic. This is due to time lags in the search for acceptable. Over the longer term a depreciation in the rate can have the desired effect of improving the current account balance. Domestic consumers might switch their expenditure to domestic products and away from expensive imported goods and services, unlike the trade balance, the trade ratio can be logged regardless of whether a trade deficit or trade surplus exists. Over time the fund will begin to experience unrealized gains followed eventually by events in which gains are realized, the steeper the positive part of the J curve, the quicker cash is returned to investors. A private equity firm that can make quick returns to investors provides investors with the opportunity to reinvest that cash elsewhere, of course, with a tightening of credit markets, private equity firms have found it harder to sell businesses they previously invested in. This leaves investors with less cash flow to invest elsewhere, such as in private equity firms. The implications for private equity could well be severe, being unable to sell businesses to generate proceeds and fees means some in the industry have predicted consolidation amongst private equity firms. Another J-Curve refers to the correlation between stability and openness and this theory was suggested initially by the author Ian Bremmer, in his book The J Curve, A New Way to Understand Why Nations Rise and Fall. The x-axis of the political J-Curve graph measures the openness of the economy in question, thus, a J-shaped curve is formed. States can travel forward and backwards along this J-curve, and so stability and openness are never secure. Bremmers entire curve can shift up or down depending on resources available to the government in question. So Saudi Arabias relative stability at every point along the curve rises or falls depending on the price of oil, Chinas curve analogously depends on the countrys economic growth. In medicine, the J-curve refers to a graph in which the x-axis measures either of two treatable symptoms while the y-axis measures the chance that a patient will develop cardiovascular disease and it is well known that high blood pressure or high cholesterol levels increase a patients risk
6. Cost curve – In economics, a cost curve is a graph of the costs of production as a function of total quantity produced. There are various types of cost curves, all related to other, including total and average cost curves, and marginal cost curves. Some are applicable to the run, others to the long run. Average variable cost is the variable cost per unit of output, SRAVC = wL / Q where w is the rate, L is the quantity of labor used. The SRAVC curve plots the short-run average variable cost against the level of output and is drawn as U-shaped. The average total cost curve is constructed to capture the relation between cost per unit of output and the level of output, ceteris paribus. A perfectly competitive and productively efficient firm organizes its factors of production in such a way that the factors of production is at the lowest point. In the short run, when at least one factor of production is fixed and this is at the minimum point in the diagram on the right. Within the graph shown in the figure, The Marginal cost curve, Average Fixed Cost curve and Average Variable cost curve can not start with zero as at quantity zero, short run average cost equals average fixed costs plus average variable costs. Average fixed cost continuously falls as production increases in the short run, the shape of the average variable cost curve is directly determined by increasing and then diminishing marginal returns to the variable input. A short-run marginal cost curve graphically represents the relation between marginal cost incurred by a firm in the production of a good or service. This curve is constructed to capture the relation between marginal cost and the level of output, holding other variables, like technology and resource prices, the marginal cost curve is usually U-shaped. Marginal cost is high at small quantities of output, then as production increases, marginal cost declines, reaches a minimum value. The marginal cost is shown in relation to marginal revenue, the amount of sales revenue that an additional unit of the product or service will bring to the firm. This shape of the marginal cost curve is directly attributable to increasing, for most production processes the marginal product of labor initially rises, reaches a maximum value and then continuously falls as production increases. Thus marginal cost initially falls, reaches a value and then increases. The marginal cost curve intersects both the average variable cost curve and average total cost curve at their minimum points, when the marginal cost curve is above an average cost curve the average curve is rising. When the marginal curve is below an average curve the average curve is falling
7. Kuznets curve – In economics, a Kuznets curve graphs the hypothesis that as an economy develops, market forces first increase and then decrease economic inequality. The hypothesis was first advanced by economist Simon Kuznets in the 1950s and 60s, the Kuznets curve implies that as a nation undergoes industrialization – and especially the mechanization of agriculture – the center of the nation’s economy will shift to the cities. As internal migration by farmers looking for better-paying jobs in urban hubs causes a significant rural-urban inequality gap, Kuznets believed that inequality would follow an inverted “U” shape as it rises and then falls again with the increase of income per-capita. Since 1991 the environmental Kuznets curve has become a feature in the technical literature of environmental policy. Comparing 20% to 20%, perfect equality is expressed as 1, Kuznets had two similar explanations for this historical phenomenon, workers migrated from agriculture to industry, and rural workers moved to urban jobs. In both explanations, inequality will decrease after 50% of the shift force switches over to the higher paying sector, critics of the Kuznets curve theory argue that its U-shape comes not from progression in the development of individual countries, but rather from historical differences between countries. For instance, many of the middle income countries used in Kuznets data set were in Latin America, when controlling for this variable, the U-shape of the curve tends to disappear. Regarding the empirical evidence, based on panels of countries or time series approaches. This neo-Malthusian model incorporating Kuznets work, yields a model of the relationships over time rather than just a curve. The East Asian miracle has been used to criticize the validity of the Kuznets curve theory. The rapid economic growth of eight East Asian countries—Japan, South Korea, Hong Kong, Taiwan, Singapore, Indonesia, Thailand, manufacturing and export grew quickly and powerfully. Yet simultaneously, life expectancy was found to increase and population living in absolute poverty decreased. This development process was contrary to the Kuznets curve theory and these factors increased the average citizen’s ability to consume and invest within the economy, further contributing to economic growth. Stiglitz highlights that the rates of growth provided the resources to promote equality. The EAM defies the Kuznets curve, which insists growth produces inequality, and this level is also similar to that of half of the first-tier NICs, the Mediterranean EU and the Anglophone OECD. As a result, about 80% of the population now live in countries with a Gini around 40. Palma goes on to note that, among countries, only those in Latin America. Instead of a Kuznets curve, he breaks income inequality into deciles which contain 10% of the population relating to income inequality
8. Offer curve – In economics and particularly in international trade, an offer curve shows the quantity of one type of product that an agent will export for each quantity of another type of product that it imports. The offer curve was first derived by English economists Edgeworth and Marshall to help explain international trade, the offer curve is derived from the countrys PPF. We describe a Country named K which enjoys both goods Y and X and it is slightly better at producing good X, but wants to consume both goods. It wants to consume at point C or higher, Country K starts in Autarky at point C. At point C, country K can produce 3 Y for 5 X, as trade begins with another country, and country K begins to specialize in producing good X. When it produces at point B, it can trade with the other country and we now look at our Offer curve and draw a ray at the level 5 Y for 7 X. When full specialization occurs, K then produces at point A, trades, the price has reduced to 1 Y for 1 X, and the economy is now at equilibrium Salvatore, Dominick. John Wiley & Sons, Inc,2001
9. Indifference curve – In economics, an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. That is, the consumer has no preference for one combination or bundle of goods over a different combination on the same curve, one can also refer to each point on the indifference curve as rendering the same level of utility for the consumer. In other words, a curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer. Utility is then a device to represent preferences rather than something from which preferences come, the main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles. There are infinitely many curves, one passes through each combination. A collection of curves, illustrated graphically, is referred to as an indifference map. The theory can be derived from William Stanley Jevons ordinal utility theory, a graph of indifference curves for several utility levels of an individual consumer is called an indifference map. Points yielding different utility levels are associated with distinct indifference curves. Each point on the curve represents the same elevation, If you move off an indifference curve traveling in a northeast direction you are essentially climbing a mound of utility. The higher you go the greater the level of utility, the non-satiation requirement means that you will never reach the top, or a bliss point, a consumption bundle that is preferred to all others. Indifference curves are typically represented to be, Defined only in the quadrant of commodity quantities. That is, as quantity consumed of one increases, total satisfaction would increase if not offset by a decrease in the quantity consumed of the other good. Equivalently, satiation, such that more of good is equally preferred to no increase, is excluded. So, with, no two curves can intersect, transitive with respect to points on distinct indifference curves. That is, if each point on I2 is preferred to each point on I1, with, convex preferences imply that the indifference curves cannot be concave to the origin, i. e. they will either be straight lines or bulge toward the origin of the indifference curve. If the latter is the case, then as a consumer decreases consumption of one good in successive units, the consumer has ranked all available alternative combinations of commodities in terms of the satisfaction they provide him. Assume that there are two consumption bundles A and B each containing two commodities x and y, also if A I B and B I C, then A I C. Preferences are continuous If A is preferred to B and C is sufficiently close to B then A is preferred to C, continuous means infinitely divisible - just like there are infinitely many numbers between 1 and 2 all bundles are infinitely divisible
10. Economic graph – The social science of economics makes extensive use of graphs to better illustrate the economic principles and trends it is attempting to explain. Those graphs have specific qualities that are not often found in other sciences, a common and specific example is the supply-and-demand graph shown at right. This graph shows supply and demand as opposing curves, and the intersection between those curves determines the equilibrium price. An alteration of either supply or demand is shown by displacing the curve to either the left or to the right, economic graphs are presented only in the first quadrant of the Cartesian plane when the variables conceptually can only take on non-negative values. Even though the axes refer to numerical variables, specific values are not introduced if a conceptual point is being made that would apply to any numerical examples. More generally, there is some mathematical model underlying any given economic graph. For instance, the commonly used supply-and-demand graph has its underpinnings in general price theory—a highly mathematical discipline, in most mathematical contexts, the independent variable is placed on the horizontal axis and the dependent variable on the vertical axis. For example, if f is plotted against x, conventionally x is plotted horizontally and this placement is often, but not always, reversed in economic graphs. Yet other graphs may have one curve for which the independent variable is plotted horizontally and another curve for which the independent variable is plotted vertically
11. Lorenz curve – In economics, the Lorenz curve is a graphical representation of the distribution of income or of wealth. It was developed by Max O. Lorenz in 1905 for representing inequality of the wealth distribution, the curve is a graph showing the proportion of overall income or wealth assumed by the bottom x% of the people, although this is not rigorously true for a finite population. It is often used to represent income distribution, where it shows for the bottom x% of households, the percentage of households is plotted on the x-axis, the percentage of income on the y-axis. It can also be used to show distribution of assets, in such use, many economists consider it to be a measure of social inequality. It is also useful in modeling, e. g. in consumer finance. Points on the Lorenz curve represent statements like the bottom 20% of all households have 10% of the total income, a perfectly equal income distribution would be one in which every person has the same income. In this case, the bottom N% of society would always have N% of the income and this can be depicted by the straight line y = x, called the line of perfect equality. By contrast, an unequal distribution would be one in which one person has all the income. In that case, the curve would be at y = 0% for all x < 100% and this curve is called the line of perfect inequality. The Gini coefficient is the ratio of the area between the line of equality and the observed Lorenz curve to the area between the line of perfect equality and the line of perfect inequality. The higher the coefficient, the more unequal the distribution is, in the diagram on the right, this is given by the ratio A/, where A and B are the areas of regions as marked in the diagram. The Lorenz curve L may then be plotted as a function parametric in x, L vs. F, in other contexts, the quantity computed here is known as the length biased distribution, it also has an important role in renewal theory. However, the formula can still apply by generalizing the definition of x, x = inf For an example of a Lorenz curve. A Lorenz curve always starts at and ends at, the Lorenz curve is not defined if the mean of the probability distribution is zero or infinite. The Lorenz curve for a probability distribution is a continuous function, however, Lorenz curves representing discontinuous functions can be constructed as the limit of Lorenz curves of probability distributions, the line of perfect inequality being an example. The information in a Lorenz curve may be summarized by the Gini coefficient, the Lorenz curve cannot rise above the line of perfect equality. If the variable being measured cannot take negative values, the Lorenz curve, note however that a Lorenz curve for net worth would start out by going negative due to the fact that some people have a negative net worth because of debt. The Lorenz curve is invariant under positive scaling, if X is a random variable, for any positive number c the random variable c X has the same Lorenz curve as X