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Economics
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Economics is a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services according to the Merriam-Webster Dictionary. Economics focuses on the behaviour and interactions of economic agents and how economies work, consistent with this focus, textbooks often distinguish between microeconomics and macroeconomics. Microeconomics examines the behaviour of elements in the economy, including individual agents and markets, their interactions. Individual agents may include, for example, households, firms, buyers, macroeconomics analyzes the entire economy and issues affecting it, including unemployment of resources, inflation, economic growth, and the public policies that address these issues. Economic analysis can be applied throughout society, as in business, finance, health care, Economic analyses may also be applied to such diverse subjects as crime, education, the family, law, politics, religion, social institutions, war, science, and the environment. At the turn of the 21st century, the domain of economics in the social sciences has been described as economic imperialism. The ultimate goal of economics is to improve the conditions of people in their everyday life. There are a variety of definitions of economics. Some of the differences may reflect evolving views of the subject or different views among economists, to supply the state or commonwealth with a revenue for the publick services. Say, distinguishing the subject from its uses, defines it as the science of production, distribution. On the satirical side, Thomas Carlyle coined the dismal science as an epithet for classical economics, in this context and it enquires how he gets his income and how he uses it. Thus, it is on the one side, the study of wealth and on the other and more important side, a part of the study of man. He affirmed that previous economists have usually centred their studies on the analysis of wealth, how wealth is created, distributed, and consumed, but he said that economics can be used to study other things, such as war, that are outside its usual focus. This is because war has as the goal winning it, generates both cost and benefits, and, resources are used to attain the goal. If the war is not winnable or if the costs outweigh the benefits. Some subsequent comments criticized the definition as overly broad in failing to limit its subject matter to analysis of markets, there are other criticisms as well, such as in scarcity not accounting for the macroeconomics of high unemployment. The same source reviews a range of included in principles of economics textbooks. Among economists more generally, it argues that a particular definition presented may reflect the direction toward which the author believes economics is evolving, microeconomics examines how entities, forming a market structure, interact within a market to create a market system
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Factors of production
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In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, finished goods and services. The utilized amounts of the various inputs determine the quantity of output according to a relationship is called the production function, there are three basic resources or factors of production, land, labor and capital. The factors are also frequently labeled producer goods or services to them from the goods or services purchased by consumers. All three of these are required in combination at a time to produce a commodity, there are two types of factors, primary and secondary. The previously mentioned primary factors are land, labor, and capital goods, materials and energy are considered secondary factors in classical economics because they are obtained from land, labour and capital. The primary factors facilitate production but neither become part of the product nor become significantly transformed by the production process, land includes not only the site of production but natural resources above or below the soil. Recent usage has distinguished human capital from labor, entrepreneurship is also sometimes considered a factor of production. Sometimes the overall state of technology is described as a factor of production, the number and definition of factors varies, depending on theoretical purpose, empirical emphasis, or school of economics. Differences are most stark when it comes to deciding which factor is the most important, however, other authors argue that entrepreneurship is nothing but a specific kind of labor or human capital and should not be treated separately. The Marxian school goes further, seeing labor as the factor of production, since it is required to produce capital goods. But this debate is more basic economic theory than it is about the definition of the factors of production. The payment for use and the income of a land owner is rent. Labor — human effort used in production also includes technical. The payment for someone elses labor and all received from ones own labor is wages. Labor can also be classified as the physical and mental contribution of an employee to the production of the good, the capital stock — human-made goods which are used in the production of other goods. These include machinery, tools, and buildings, the classical economists also employed the word capital in reference to money. Money, however, was not considered to be a factor of production in the sense of capital stock since it is not used to produce any good. The return to loaned money or to loaned stock was styled as interest while the return to the proprietor of capital stock was styled as profit
3.
Output (economics)
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Output in economics is the quantity of goods or services produced in a given time period, by a firm, industry, or country, whether consumed or used for further production. The concept of national output is essential in the field of macroeconomics and it is national output that makes a country rich, not large amounts of money. The result of a process that has used inputs to produce a product or service that is available for sale or use somewhere else. Several different methods of measuring output are utilized, calculating GDP is the most popular measure of national output. The main challenge in using this method is how to avoid counting the same more than once. One way of tackling the problem of counting is to, consider only value addition. To illustrate, we can take a dressmaker who purchased a dress material for 500 rupees, then stitched and she then sold the dress for 800 rupees. We can then say that she added 150 rupees worth of output to the dress, so value addition is equal to the sales price of a good or service, minus all the non-labour costs used to produce it. To avoid the issue of over-counting, one can focus entirely on final sales. As a result, investment only includes expenditures on output that is not expected to be used up in the short run, another possible way in which one may over count is if imports are involved. To correct this issue, imports are eliminated from GDP, taking all this into account, we see that National output = C+I+G+X-M A third way to calculate national output is to focus on income. In this method, we look at income which is paid to factors of production and this is usually paid in the form of wages and salaries, it can also be paid in the form of royalties, rent, dividends, etc. Because income is a payment for output, it is assumed that total income should eventually be equal to total output. One may also deduce the ratio of marginal costs as the slope of the production–possibility frontier, exchange of output between two countries is a very common occurrence, as there is always trade taking place between different nations of the world. For example, Japan may trade its electronics with Germany for German-made cars, in macroeconomics, the question of why national output fluctuates is a very critical one. And though no one answer has been come up with, there are factors which economists agree which make output go up
4.
Profit (economics)
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Profit or normal profit is a component of costs and not a component of business profit at all. It represents the opportunity cost, as the time that the owner spends running the firm could be spent on running a different firm. In other words, the cost of normal profit varies both within and across industries, it is commensurate with the associated with each type of investment. Only normal profits arise in circumstances of perfect competition when long-run economic equilibrium is reached, the same is likewise true of the long run equilibria of monopolistically competitive industries and, more generally, any market which is held to be contestable. Normally, a firm that introduces a differentiated product can initially secure a temporary power for a short while. At this stage, the price the consumer must pay for the product is high. When this finally occurs, all monopoly associated with producing and selling the product disappears. Profit can, however, occur in competitive and contestable markets in the short run, economic profit is, however, much more prevalent in uncompetitive markets such as in a perfect monopoly or oligopoly situation. This allows the firm to set a price which is higher than that which would be found in a similar but more competitive industry, allowing them economic profit in both the long and short run. In a single-goods case, an economic profit happens when the firms average cost is less than the price of the product or service at the profit-maximizing output. The economic profit is equal to the quantity of output multiplied by the difference between the average cost and the price, often, governments will try to intervene in uncompetitive markets to make them more competitive. Antitrust or competition laws were created to prevent powerful firms from using their power to artificially create the barriers to entry they need to protect their economic profits. This includes the use of predatory pricing toward smaller competitors, with lower barriers, new firms can enter the market again, making the long run equilibrium much more like that of a competitive industry, with no economic profit for firms. For example, the old AT&T monopoly, which existed before the courts ordered its breakup, had to get government approval to raise its prices. Though a regulated firm will not have a profit as large as it would in an unregulated situation. The social profit from a firms activities is the normal profit plus or minus any externalities or consumer surpluses that occur in its activity, a firm may report relatively large monetary profits, but by creating negative externalities their social profit could be relatively small. Profitability is a term of economic efficiency, mathematically it is a relative index – a fraction with profit as numerator and generating profit flows or assets as denominator. It is a standard economic assumption that, other things being equal, given that profit is defined as the difference in total revenue and total cost, a firm achieves a maximum by operating at the point where the difference between the two is at its greatest
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Neoclassical economics
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Neoclassical economics is an approach to economics focusing on the determination of goods, outputs, and income distributions in markets through supply and demand. Neoclassical economics dominates microeconomics, and together with Keynesian economics forms the neoclassical synthesis which dominates mainstream economics today. – Veblen It was later used by John Hicks, George Stigler, and others to include the work of Carl Menger, William Stanley Jevons, Léon Walras, John Bates Clark, neoclassical economics is characterized by several assumptions common to many schools of economic thought. Individuals maximize utility and firms maximize profits, people act independently on the basis of full and relevant information. Heres how William Stanley Jevons presented the problem of Economics, from the basic assumptions of neoclassical economics comes a wide range of theories about various areas of economic activity. Utility maximization is the source for the theory of consumption, the derivation of demand curves for consumer goods. Market supply and demand are aggregated across firms and individuals and their interactions determine equilibrium output and price. The market supply and demand for each factor of production is derived analogously to those for market final output to determine equilibrium income, factor demand incorporates the marginal-productivity relationship of that factor in the output market. Neoclassical economics emphasizes equilibria, where equilibria are the solutions of agent maximization problems, regularities in economies are explained by methodological individualism, the position that economic phenomena can be explained by aggregating over the behavior of agents. Institutions, which might be considered as prior to and conditioning individual behavior, are de-emphasized, Classical economics, developed in the 18th and 19th centuries, included a value theory and distribution theory. The value of a product was thought to depend on the involved in producing that product. The explanation of costs in Classical economics was simultaneously an explanation of distribution, a landlord received rent, workers received wages, and a capitalist tenant farmer received profits on their investment. This classic approach included the work of Adam Smith and David Ricardo, however, some economists gradually began emphasizing the perceived value of a good to the consumer. They proposed a theory that the value of a product was to be explained with differences in utility to the consumer, the third step from political economy to economics was the introduction of marginalism and the proposition that economic actors made decisions based on margins. This differs from the decision making of classical political economy in that it explains how vital goods such as water can be cheap. The change in theory from classical to neoclassical economics has been called the marginal revolution. It is frequently dated from William Stanley Jevonss Theory of Political Economy, Carl Mengers Principles of Economics, in particular, Jevons saw his economics as an application and development of Jeremy Benthams utilitarianism and never had a fully developed general equilibrium theory. Jevons built on the conception of Bentham or of Mill
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Mainstream economics
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Mainstream economics is widely accepted economics as taught across prominent universities, in contrast to heterodox economics. It has been associated with economics and with the neoclassical synthesis, which combines neoclassical methods. In the United States, mainstream economists are not generally separated into schools, in the early 1970s, so-called fresh-water economists challenged the prevailing consensus in macroeconomics research. Key elements of their approach were that macroeconomics had to be dynamic, quantitative and they were referred to as the freshwater school since Pittsburgh, Chicago, Rochester, and Minneapolis are located nearer to the Great Lakes. They were therefore referred to as the saltwater schools. Today, mainstream economists do not, in general, identify themselves as members of a particular school, prior to the development of modern academic economics, the dominant school in Europe was mercantilism, which was rather a loose set of related ideas than an institutionalized school. From The Wealth of Nations until the Great Depression, the dominant school within the English-speaking world was classical economics, within developing economies, which formed the majority of the worlds population, various schools of development economics have been influential. The term mainstream economics came into use in the late 20th century. M. The term neoclassical synthesis itself also first appears in the 1955 edition of Samuelsons textbook, mainstream economics can be defined, as distinct from other schools of economics, by various criteria, notably by its assumptions, its methods, and its topics. A number of assumptions may underpin many mainstream models, while being rejected by some heterodox schools. These include the neoclassical assumptions of rational choice theory, a representative agent, the starting point of orthodox economic analysis is the individual. People are generally defined as units with a goal, maximisation through rational behaviour. The only differences consist of, the objective of the maximisation. From this theoretical framework, orthodox economists derive that political action should not be used to solve the problems of the economic system, instead, the solution ought to derive from an intervention on the above-mentioned maximisation objectives and constraints. It is in context that economic capitalism finds its justification. Capitalism and its arguments seem logical because orthodox economics theories think of the economy as the sum of the agents trying to maximise their utility or profit through exchange. Geoffrey Hodgson has considered the possibility that evolutionary economics and institutional economics may eventually become a new mainstream and they may use neoclassical economics as a point of departure. At least one institutionalist has argued that neoclassical economics no longer dominates a mainstream economics, a countervailing trend is the expansion of mainstream methods to such seemingly distant fields as crime, the family, law, politics, and religion
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Microeconomics
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One goal of microeconomics is to analyze the market mechanisms that establish relative prices among goods and services and allocate limited resources among alternative uses. Microeconomics shows conditions under which free markets lead to desirable allocations and it also analyzes market failure, where markets fail to produce efficient results. Microeconomics also deals with the effects of economic policies on the aspects of the economy. Particularly in the wake of the Lucas critique, much of modern macroeconomic theory has been built upon microfoundations—i. e, based upon basic assumptions about micro-level behavior. Microeconomic theory typically begins with the study of a single rational, to economists, rationality means an individual possesses stable preferences that are both complete and transitive. The technical assumption that preference relations are continuous is needed to ensure the existence of a utility function, microeconomic theory progresses by defining a competitive budget set which is a subset of the consumption set. It is at point that economists make the technical assumption that preferences are locally non-satiated. Without the assumption of LNS there is no guarantee that an individual would maximize utility. With the necessary tools and assumptions in place the utility maximization problem is developed, the utility maximization problem is the heart of consumer theory. The utility maximization problem attempts to explain the action axiom by imposing rationality axioms on consumer preferences, the utility maximization problem serves not only as the mathematical foundation of consumer theory but as a metaphysical explanation of it as well. That is, the utility maximization problem is used by economists to not only explain what or how individuals make choices, the utility maximization problem is a constrained optimization problem in which an individual seeks to maximize utility subject to a budget constraint. Economists use the extreme value theorem to guarantee that a solution to the utility maximization problem exists and that is, since the budget constraint is both bounded and closed, a solution to the utility maximization problem exists. Economists call the solution to the utility maximization problem a Walrasian demand function or correspondence, the utility maximization problem has so far been developed by taking consumer tastes as the primitive. However, a way to develop microeconomic theory is by taking consumer choice as the primitive. This model of microeconomic theory is referred to as Revealed preference theory, the theory of supply and demand usually assumes that markets are perfectly competitive. This implies that there are buyers and sellers in the market and none of them have the capacity to significantly influence prices of goods. In many real-life transactions, the assumption fails because some individual buyers or sellers have the ability to influence prices, quite often, a sophisticated analysis is required to understand the demand-supply equation of a good model. However, the works well in situations meeting these assumptions
8.
Revenue
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In accounting, revenue is the income that a business has from its normal business activities, usually from the sale of goods and services to customers. Revenue is also referred to as sales or turnover, some companies receive revenue from interest, royalties, or other fees. Revenue may refer to income in general, or it may refer to the amount, in a monetary unit, received during a period of time, as in Last year. Profits or net income generally imply total revenue minus total expenses in a given period, in accounting, revenue is often referred to as the top line due to its position on the income statement at the very top. This is to be contrasted with the line which denotes net income. For non-profit organizations, annual revenue may be referred to as gross receipts, in general usage, revenue is income received by an organization in the form of cash or cash equivalents. Sales revenue or revenues is income received from selling goods or services over a period of time, tax revenue is income that a government receives from taxpayers. In more formal usage, revenue is a calculation or estimation of periodic income based on a standard accounting practice or the rules established by a government or government agency. Two common accounting methods, cash basis accounting and accrual basis accounting, corporations that offer shares for sale to the public are usually required by law to report revenue based on generally accepted accounting principles or International Financial Reporting Standards. In a double-entry bookkeeping system, revenue accounts are general ledger accounts that are summarized periodically under the heading Revenue or Revenues on an income statement, Revenue account names describe the type of revenue, such as Repair service revenue, Rent revenue earned or Sales. Money income from activities that are ordinary for a corporation, company, partnership. For some businesses, such as manufacturing and/or grocery, most revenue is from the sale of goods, service businesses such as law firms and barber shops receive most of their revenue from rendering services. Lending businesses such as car rentals and banks receive most of their revenue from fees, Revenues from a businesss primary activities are reported as sales, sales revenue or net sales. This includes product returns and discounts for early payment of invoices, most businesses also have revenue that is incidental to the businesss primary activities, such as interest earned on deposits in a demand account. This is included in revenue but not included in net sales, Sales revenue does not include sales tax collected by the business. Other revenue is revenue from peripheral operations, for example, a company that manufactures and sells automobiles would record the revenue from the sale of an automobile as regular revenue. The combination of all the revenue generating systems of a business is called its revenue model, Revenue is a crucial part of financial statement analysis. The company’s performance is measured to the extent to which its asset inflows compare with its asset outflows, net income is the result of this equation, but revenue typically enjoys equal attention during a standard earnings call
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Graph of a function
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In mathematics, the graph of a function f is the collection of all ordered pairs. If the function x is a scalar, the graph is a two-dimensional graph. If the function x is an ordered pair of real numbers, the graph is the collection of all ordered triples. Graphing on a Cartesian plane is referred to as curve sketching. The graph of a function on real numbers may be mapped directly to the representation of the function. The concept of the graph of a function is generalized to the graph of a relation, note that although a function is always identified with its graph, they are not the same because it will happen that two functions with different codomain could have the same graph. For example, the cubic polynomial mentioned below is a surjection if its codomain is the real numbers, to test whether a graph of a curve is a function of x, one uses the vertical line test. To test whether a graph of a curve is a function of y, if the function has an inverse, the graph of the inverse can be found by reflecting the graph of the original function over the line y = x. In science, engineering, technology, finance, and other areas, in the simplest case one variable is plotted as a function of another, typically using rectangular axes, see Plot for details. In the modern foundation of mathematics known as set theory, a function, F = { a, if x =1, d, if x =2, c, if x =3, is. The graph of the polynomial on the real line f = x 3 −9 x is. If this set is plotted on a Cartesian plane, the result is a curve, the graph of the trigonometric function f = sin cos is. If this set is plotted on a three dimensional Cartesian coordinate system, the result is a surface, oftentimes it is helpful to show with the graph, the gradient of the function and several level curves. The level curves can be mapped on the surface or can be projected on the bottom plane. The second figure shows such a drawing of the graph of the function, f = −2 Given a function f of n variables, x 1, …, x n, the normal to the graph is. This is seen by considering the graph as a set of the function g = f − z. The graph of a function is contained in a Cartesian product of sets, fibre bundles arent cartesian products, but appear to be up close. There is a notion of a graph on a fibre bundle called a section
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Function (mathematics)
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In mathematics, a function is a relation between a set of inputs and a set of permissible outputs with the property that each input is related to exactly one output. An example is the function that each real number x to its square x2. The output of a function f corresponding to a x is denoted by f. In this example, if the input is −3, then the output is 9, likewise, if the input is 3, then the output is also 9, and we may write f =9. The input variable are sometimes referred to as the argument of the function, Functions of various kinds are the central objects of investigation in most fields of modern mathematics. There are many ways to describe or represent a function, some functions may be defined by a formula or algorithm that tells how to compute the output for a given input. Others are given by a picture, called the graph of the function, in science, functions are sometimes defined by a table that gives the outputs for selected inputs. A function could be described implicitly, for example as the inverse to another function or as a solution of a differential equation, sometimes the codomain is called the functions range, but more commonly the word range is used to mean, instead, specifically the set of outputs. For example, we could define a function using the rule f = x2 by saying that the domain and codomain are the numbers. The image of this function is the set of real numbers. In analogy with arithmetic, it is possible to define addition, subtraction, multiplication, another important operation defined on functions is function composition, where the output from one function becomes the input to another function. Linking each shape to its color is a function from X to Y, each shape is linked to a color, there is no shape that lacks a color and no shape that has more than one color. This function will be referred to as the color-of-the-shape function, the input to a function is called the argument and the output is called the value. The set of all permitted inputs to a function is called the domain of the function. Thus, the domain of the function is the set of the four shapes. The concept of a function does not require that every possible output is the value of some argument, a second example of a function is the following, the domain is chosen to be the set of natural numbers, and the codomain is the set of integers. The function associates to any number n the number 4−n. For example, to 1 it associates 3 and to 10 it associates −6, a third example of a function has the set of polygons as domain and the set of natural numbers as codomain
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Calculus
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Calculus is the mathematical study of continuous change, in the same way that geometry is the study of shape and algebra is the study of generalizations of arithmetic operations. It has two branches, differential calculus, and integral calculus, these two branches are related to each other by the fundamental theorem of calculus. Both branches make use of the notions of convergence of infinite sequences. Generally, modern calculus is considered to have developed in the 17th century by Isaac Newton. Today, calculus has widespread uses in science, engineering and economics, Calculus is a part of modern mathematics education. A course in calculus is a gateway to other, more advanced courses in mathematics devoted to the study of functions and limits, Calculus has historically been called the calculus of infinitesimals, or infinitesimal calculus. Calculus is also used for naming some methods of calculation or theories of computation, such as calculus, calculus of variations, lambda calculus. The ancient period introduced some of the ideas that led to integral calculus, the method of exhaustion was later discovered independently in China by Liu Hui in the 3rd century AD in order to find the area of a circle. In the 5th century AD, Zu Gengzhi, son of Zu Chongzhi, indian mathematicians gave a non-rigorous method of a sort of differentiation of some trigonometric functions. In the Middle East, Alhazen derived a formula for the sum of fourth powers. He used the results to carry out what would now be called an integration, Cavalieris work was not well respected since his methods could lead to erroneous results, and the infinitesimal quantities he introduced were disreputable at first. The formal study of calculus brought together Cavalieris infinitesimals with the calculus of finite differences developed in Europe at around the same time, pierre de Fermat, claiming that he borrowed from Diophantus, introduced the concept of adequality, which represented equality up to an infinitesimal error term. The combination was achieved by John Wallis, Isaac Barrow, and James Gregory, in other work, he developed series expansions for functions, including fractional and irrational powers, and it was clear that he understood the principles of the Taylor series. He did not publish all these discoveries, and at this time infinitesimal methods were considered disreputable. These ideas were arranged into a calculus of infinitesimals by Gottfried Wilhelm Leibniz. He is now regarded as an independent inventor of and contributor to calculus, unlike Newton, Leibniz paid a lot of attention to the formalism, often spending days determining appropriate symbols for concepts. Leibniz and Newton are usually credited with the invention of calculus. Newton was the first to apply calculus to general physics and Leibniz developed much of the used in calculus today
12.
Marginal revenue
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In microeconomics, marginal revenue is the additional revenue that will be generated by increasing product sales by one unit. It can also be described as the revenue the last item sold has generated for the firm. In a perfectly competitive market, the revenue generated by selling an additional unit of a good is equal to the price the firm is able to charge the buyer of the good. However, a monopoly determines the entire industrys sales, as a result, it will have to lower the price of all units sold to increase sales by 1 unit. The marginal revenue is the price the firm gets on the unit sold. Marginal revenue is equal to the ratio of the change in revenue for some change in quantity sold to that change in quantity sold and this can also be represented as a derivative when the change in quantity sold becomes arbitrarily small. More formally, define the function to be the following R = P ⋅ q. By the product rule, marginal revenue is given by R ′ = P + P ′ ⋅ q. For a firm facing perfect competition, price does not change with quantity sold, for a monopoly, the price decreases with quantity sold, so marginal revenue is less than price. The marginal revenue curve is affected by the factors as the demand curve - changes in income, change in the prices of complements and substitutes. These factors can cause the R curve to shift and rotate, if demand is elastic R will be positive, because the additional unit would not drive down the price by so much. Profit maximization requires that a firm produces where marginal revenue equals marginal costs, firm managers are unlikely to have complete information concerning their marginal revenue function or their marginal costs. Fortunately the profit maximization conditions can be expressed in an easily applicable form” or rule of thumb. R = C R = <R> MC = <R> MC = <R> + <R>/e<R> / <R> = - 1/e<R> Markup is the difference between price and marginal cost, the formula states that markup as a percentage of price equals the negative of the inverse of elasticity of demand. Alternatively, the relationship can be expressed as, <R> = C/ Thus if e<R> is -2, / <R> = - 1/e<R> is called the Lerner index after economist Abba Lerner. The Lerner index is a measure of market power - the ability of a firm to charge a price that exceeds marginal cost, the index varies from zero to 1. The greater the difference between price and marginal cost the closer the value is to 1. The Lerner index increases as demand becomes less elastic, real life example, if you can sell 10 units at $20 each or 11 units at $19 each, then your marginal revenue from the eleventh unit is - = $9
13.
Marginal cost
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In economics, marginal cost is the change in the opportunity cost that arises when the quantity produced is incremented by one unit, that is, it is the cost of producing one more unit of a good. In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit, for example, if producing additional vehicles requires building a new factory, the marginal cost of the extra vehicles includes the cost of the new factory. In practice, this analysis is segregated into short and long-run cases, so that, over the longest run, the graph is plotted with Price, Cost and Revenue on the Y-axis and Quantity on the X-axis. This is as the definition finds the tangent to the total cost curve at the point q which assumes that costs increase at the rate as they were at q. If the cost function is differentiable joining, the marginal cost is the cost of the unit produced referring to the basic volume. Marginal Cost = d C d Q If the cost function is not differentiable, M C = Δ C Δ Q A number of other factors can affect marginal cost and its applicability to real world problems. Some of these may be considered market failures and these may include information asymmetries, the presence of negative or positive externalities, transaction costs, price discrimination and others. Since fixed costs do not vary with production quantity, it out of the equation when it is differentiated. The important conclusion is that marginal cost is not related to fixed costs and this can be compared with average total cost or ATC, which is the total cost divided by the number of units produced and does include fixed costs. A T C = C0 + Δ C Q For discrete calculation without calculus, for instance, suppose the total cost of making 1 shoe is $30 and the total cost of making 2 shoes is $40. The marginal cost of producing the second shoe is $40 – $30 = $10, marginal cost is not the cost of producing the next or last unit. As Silberberg and Suen note, the cost of the last unit is the same as the cost of the first unit, in the short run, increasing production requires using more of the variable input — conventionally assumed to be labor. Adding more labor to a capital stock reduces the marginal product of labor because of the diminishing marginal returns. This reduction in productivity is not limited to the labor needed to produce the marginal unit – the productivity of every unit of labor is reduced. The first component is the per unit or average cost, the second unit is the small increase in costs due to the law of diminishing marginal returns which increases the costs of all units of sold. Marginal costs can also be expressed as the cost per unit of labor divided by the product of labor. Economies of scale is a concept applies to the long run. Production may be subject to economies of scale, conversely, there may be levels of production where marginal cost is higher than average cost, and average cost is an increasing function of output
14.
Production function
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In economics, a production function relates physical output of a production process to physical inputs or factors of production. The production function is one of the key concepts of mainstream neoclassical theories, used to define marginal product and to distinguish allocative efficiency, Production function denotes an efficient combination of inputs and outputs. Some non-mainstream economists, however, reject the concept of an aggregate production function. In general, economic output is not a function of input, to satisfy the mathematical definition of a function, a production function is customarily assumed to specify the maximum output obtainable from a given set of inputs. The production function, therefore, describes a boundary or frontier representing the limit of output obtainable from each feasible combination of input, under certain assumptions, the production function can be used to derive a marginal product for each factor. The profit-maximizing firm in perfect competition will choose to add input right up to the point where the marginal cost of additional input matches the product in additional output. This implies an ideal division of the income generated from output into a due to each input factor of production. The inputs to the function are commonly termed factors of production and may represent primary factors. Classically, the factors of production were Land, Labor. Primary factors do not become part of the product, nor are the primary factors, themselves. The production function, as a construct, may be abstracting away from the secondary factors. Moreover, production functions do not ordinarily model the processes, either, ignoring the role of strategic. A production function can be expressed in a form as the right side of Q = f where Q is the quantity of output. If Q is not a matrix, then this form does not encompass joint production, which is a production process that has multiple co-products. One formulation, unlikely to be relevant in practice, is as a linear function, another is as a Cobb-Douglas production function, Q = a X1 b X2 c ⋯. This production function is given by Q = min, other forms include the constant elasticity of substitution production function, which is a generalized form of the Cobb-Douglas function, and the quadratic production function. The best form of the equation to use and the values of the parameters vary from company to company, in a short run production function at least one of the X s is fixed. In the long run all factor inputs are variable at the discretion of management, any of these equations can be plotted on a graph
15.
Perfect competition
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In economics and general equilibrium theory, a perfect market is defined by several conditions, collectively called perfect competition. Perfect information – All consumers and producers know all prices of products, homogeneous products – The products are perfect substitutes for each other. Well defined Property rights – These determine what may be sold, profit maximization of sellers – Firms sell where the most profit is generated, where marginal costs meet marginal revenue. Rational buyers, Buyers make all trades that increase their economic utility, No externalities – Costs or benefits of an activity do not affect third parties. This criteria also excludes any government intervention, zero transaction costs – Buyers and sellers do not incur costs in making an exchange of goods in a perfectly competitive market. Non-increasing returns to scale and no network effects – The lack of economies of scale or network effects ensures that there always be a sufficient number of firms in the industry. This equilibrium will be a Pareto optimum, meaning that nobody can be better off by exchange without making someone else worse off. Such markets are efficient, as output will always occur where marginal cost is equal to marginal revenue. But perfectly competitive markets are not necessarily productively efficient as output will not always occur where marginal cost is equal to average cost, in perfect competition, any profit-maximizing producer faces a market price equal to its marginal cost. This implies that a factors price equals the marginal revenue product. It allows for derivation of the curve on which the neoclassical approach is based. This is also the reason why a monopoly does not have a supply curve, the abandonment of price taking creates considerable difficulties for the demonstration of a general equilibrium except under other, very specific conditions such as that of monopolistic competition. Real markets are never perfect, but range from close-to-perfect to very imperfect, share and foreign exchange markets are commonly said to be the most similar to the perfect market. The real estate market is an example of an imperfect market. In a perfect market the sellers operate at zero economic surplus, normal profit is a component of costs and not a component of business profit at all. It represents the opportunity cost, as the time that the owner spends running the firm could be spent on running a different firm. In other words, the cost of normal profit varies both within and across industries, it is commensurate with the associated with each type of investment. Only normal profits arise in circumstances of perfect competition when long run equilibrium is reached
16.
Monopoly
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A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity. The verb monopolise or monopolize refers to the process by which a company gains the ability to raise prices or exclude competitors, in economics, a monopoly is a single seller. In law, a monopoly is an entity that has significant market power, that is. Although monopolies may be big businesses, size is not a characteristic of a monopoly, a small business may still have the power to raise prices in a small industry. A monopoly is distinguished from a monopsony, in there is only one buyer of a product or service. Likewise, a monopoly should be distinguished from a cartel, in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies are all situations in one or a few entities have market power and therefore interact with their customers. Monopolies can be established by a government, form naturally, or form by integration, in many jurisdictions, competition laws restrict monopolies. A government-granted monopoly or legal monopoly, by contrast, is sanctioned by the state, patents, copyrights, and trademarks are sometimes used as examples of government-granted monopolies. The government may also reserve the venture for itself, thus forming a government monopoly, There are four basic types of market structures in traditional economic analysis, perfect competition, monopolistic competition, oligopoly and monopoly. A monopoly is a structure in which a single supplier produces, if there is a single seller in a certain market and there are no close substitutes for the product, then the market structure is that of a pure monopoly. Sometimes, there are many sellers in an industry and/or there exist many close substitutes for the goods being produced and this is termed monopolistic competition, whereas in oligopoly the companies interact strategically. Most economic textbooks follow the practice of explaining the perfect competition model. The boundaries of what constitutes a market and what does not are relevant distinctions to make in economic analysis, in a general equilibrium context, a good is a specific concept including geographical and time-related characteristics. Most studies of market structure relax a little their definition of a good, price Maker, Decides the price of the good or product to be sold, but does so by determining the quantity in order to demand the price desired by the firm. High Barriers, Other sellers are unable to enter the market of the monopoly, single seller, In a monopoly, there is one seller of the good, who produces all the output. Therefore, the market is being served by a single company, and for practical purposes. Price Discrimination, A monopolist can change the price or quantity of the product and he or she sells higher quantities at a lower price in a very elastic market, and sells lower quantities at a higher price in a less elastic market
17.
Monopsonist
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In economics, a monopsony is a market structure in which only one buyer interacts with many would-be sellers of a particular product. The term was first introduced by Joan Robinson in her book, The Economics of Imperfect Competition. Robinson credited classics scholar Bertrand Hallward at the University of Cambridge with coining the term, Monopsony theory was developed by economist Joan Robinson in her book the Economics of Imperfect Competition. Alternative terms are oligopsony or monopsonistic competition, the standard, textbook monopsony model refers to static, partial equilibrium in a labor market with just one employer who pays the same wage to all the workers. The employer faces an upward-sloping labor supply curve, represented by the S blue curve in the diagram on the right and this curve relates the wage paid, w, to the level of employment, L, and is denoted as an increasing function w. Total labor costs are given by w ⋅ L, the firm has a total revenue R, which increases with L. The firm wants to choose L to maximize profits, P, the left-hand side of this expression, R ′, is the marginal revenue product of labor and is represented by the red MRP curve in the diagram. The right-hand side is the marginal cost of labor and is represented by the green MC curve in the diagram, notably, the marginal cost is higher than the wage w paid to the new worker by the amount w ′ L. This is because the firm has to increase the wage paid to all the workers it already employs whenever it hires an extra worker, in the diagram, this leads to an MC curve that is above the labor supply curve S. The first-order condition for maximum profit is then satisfied at point A of the diagram and this determines the profit-maximising employment as L on the horizontal axis. The corresponding wage w is obtained from the supply curve. The monopsonistic equilibrium at M can be contrasted with the equilibrium that would obtain under competitive conditions, suppose a competitor employer entered the market and offered a wage higher than that at M. Then every employee of the first employer would choose instead to work for the competitor, but the first employer would respond by offering an even higher wage, poaching the new rivals employees, and so forth. As a result, a group of competitive firms would be forced, through competition. The lower employment and wages caused by monopsony power have two effects on the economic welfare of the people involved. First, it redistributes welfare away from workers and to their employer, secondly, it reduces the aggregate welfare enjoyed by both groups taken together, as the employers net gain is smaller than the loss inflicted on workers. The diagram on the right illustrates both effects, using the approach based on the notion of economic surplus. According to this notion, the economic surplus is given by the area between the S curve and the horizontal line corresponding to the wage, up to the employment level
18.
Raw material
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As feedstock, the term connotes these materials are bottleneck assets and are highly important with regards to producing other products. This phenomenon, known as Dutch disease or the resource curse, an example of this is the geological scandal of the Democratic Republic of Congo as it is rich in raw materials, the Second Congo War focused on controlling these raw materials. Raw materials are used by non-humans, such as birds using found objects. Karl Marx, Capital, Vol.1, Part III, Chap
19.
Corporation
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A corporation is a company or group of people authorized to act as a single entity and recognized as such in law. Early incorporated entities were established by charter, most jurisdictions now allow the creation of new corporations through registration. Corporations chartered in regions where they are distinguished by whether they are allowed to be for profit or not are referred to as for profit and not-for-profit corporations, there is some overlap between stock/non-stock and for profit/not-for-profit in that not-for-profit corporations are always non-stock as well. A for profit corporation is almost always a stock corporation, registered corporations have legal personality and are owned by shareholders whose liability is limited to their investment. Shareholders do not typically actively manage a corporation, shareholders instead elect or appoint a board of directors to control the corporation in a fiduciary capacity, in American English, the word corporation is most often used to describe large business corporations. In British English and in the Commonwealth countries, the company is more widely used to describe the same sort of entity while the word corporation encompasses all incorporated entities. In American English, the company can include entities such as partnerships that would not be referred to as companies in British English as they are not a separate legal entity. Despite not being human beings, corporations, as far as the law is concerned, are legal persons. Corporations can exercise human rights against real individuals and the state, Corporations can be dissolved either by statutory operation, order of court, or voluntary action on the part of shareholders. Corporations can even be convicted of offenses, such as fraud. However, corporations are not considered living entities in the way humans are. While not a corporation, this new type of entity became very attractive as an alternative for corporations not needing to issue stock, in Germany, the organization was referred to as Gesellschaft mit beschränkter Haftung or GmbH. In the last quarter of the 20th Century this new form of organization became available in the United States and other countries. Since the GmbH and LLC forms of organization are technically not corporations they will not be discussed in this article, the word corporation derives from corpus, the Latin word for body, or a body of people. By the time of Justinian, Roman law recognized a range of corporate entities under the names universitas and these included the state itself, municipalities, and such private associations as sponsors of a religious cult, burial clubs, political groups, and guilds of craftsmen or traders. Such bodies commonly had the right to own property and make contracts, to receive gifts and legacies, to sue and be sued, private associations were granted designated privileges and liberties by the emperor. Entities which carried on business and were the subjects of rights were found in ancient Rome. In medieval Europe, churches became incorporated, as did local governments, such as the Pope, the point was that the incorporation would survive longer than the lives of any particular member, existing in perpetuity
20.
Fixed cost
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In economics, fixed costs, indirect costs or overheads are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as salaries or rents being paid per month and this is in contrast to variable costs, which are volume-related. On the other hands, the costs of the bakery are variable. The relation between fixed cost and variable cost can be modelled by an analytical formula, in management accounting, fixed costs are defined as expenses that do not change as a function of the activity of a business, within the relevant period. For example, a retailer must pay rent and utility bills irrespective of sales, in marketing, it is necessary to know how costs divide between variable and fixed costs. This distinction is crucial in forecasting the earnings generated by changes in unit sales. In a survey of nearly 200 senior marketing managers,60 percent responded that they found the variable, fixed costs are not permanently fixed, they will change over time, but are fixed in relation to the quantity of production for the relevant period. For example, a company may have unexpected and unpredictable expenses unrelated to production, such as warehouse costs, by definition, there are no fixed costs in the long run, because the long run is a sufficient period of time for all short-run fixed inputs to become variable. Investments in facilities, equipment, and the organization that cant be significantly reduced in a short period of time are referred to as committed fixed costs. Discretionary fixed costs usually arise from annual decisions by management to spend on certain fixed cost items, examples of discretionary costs are advertising, machine maintenance, and research & development expenditures. Discretionary fixed costs can be expensive, in business planning and management accounting, usage of the terms fixed costs, variable costs and others will often differ from usage in economics, and may depend on the context. Some cost accounting practices such as activity-based costing will allocate fixed costs to business activities for profitability measures and this can simplify decision-making, but can be confusing and controversial. In accounting terminology, fixed costs will include almost all costs which are not included in cost of goods sold
21.
Variable cost
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Variable costs are costs that change in proportion to the good or service that a business produces. Variable costs are also the sum of marginal costs over all units produced and they can also be considered normal costs. Fixed costs and variable costs make up the two components of total cost, direct costs, however, are costs that can easily be associated with a particular cost object. However, not all variable costs are direct costs, for example, variable manufacturing overhead costs are variable costs that are indirect costs, not direct costs. Variable costs are sometimes called unit-level costs as they vary with the number of units produced, direct labor and overhead are often called conversion cost, while direct material and direct labor are often referred to as prime cost. In marketing, it is necessary to know how costs divide between variable and fixed and this distinction is crucial in forecasting the earnings generated by various changes in unit sales and thus the financial impact of proposed marketing campaigns. In a survey of nearly 200 senior marketing managers,60 percent responded that they found the variable, the level of variable cost is influenced by many factors, such as fixed cost, duration of project, uncertainty and discount rate. An analytical formula of variable cost as a function of these factors has been derived and it can be used to assess how different factors impact variable cost and total return in an investment. A variable cost of this product would be the material, i. e. cloth. If it takes one laborer 6 yards of cloth and 8 hours to make a shirt, then the cost of labor, the amount of materials and labor that goes into each shirt increases in direct proportion to the number of shirts produced. In this sense, the cost varies as production varies, for example, a firm pays for raw materials. When activity is decreased, less raw material is used, when activity is increased, more raw material is used, and spending therefore rises. Note that the changes in expenses happen with little or no need for managerial intervention, a company will pay for line rental and maintenance fees each period regardless of how much power gets used. And some electrical equipment may be kept running even in periods of low activity and these expenses can be regarded as fixed. But beyond this, the company will use electricity to run plant, the busier the company, the more the plant will be run, and so the more electricity gets used. This extra spending can therefore be regarded as variable, in retail the cost of goods is almost entirely a variable cost, this is not true of manufacturing where many fixed costs, such as depreciation, are included in the cost of goods. Although taxation usually varies with profit, which in turn varies with sales volume, for some employees, salary is paid on monthly rates, independent of how many hours the employees work. On the other hand, the hours of employees can often be varied
22.
Total cost
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Total cost in economics includes the total opportunity cost of each factor of production as part of its fixed or variable costs. The rate at which total cost changes as the amount produced changes is called marginal cost and this is also known as the marginal unit variable cost. The total cost of producing a specific level of output is the cost of all the factors of input used, conventionally, economists use models with two inputs, capital, K, and labor, L. Capital is assumed to be the input, meaning that the amount of capital used does not vary with the level of production. The rental price per unit of capital is denoted r, thus, the total fixed costs equal Kr. Labor is the input, meaning that the amount of labor used varies with the level of output. In fact, in the run, the only way to vary output is by varying the amount of the variable input. Labor is denoted L and the per unit cost, or wage rate, is denoted w, consequently, total cost is fixed costs plus variable cost, or TC = FC + VC = Kr +wL. Other economic models have the total variable cost curve illustrate the concepts of increasing, in marketing, it is necessary to know how total costs divide between variable and fixed. This distinction is crucial in forecasting the earnings generated by changes in unit sales. In a survey of nearly 200 senior marketing managers,60 percent responded that they found the variable and fixed costs metric very useful
23.
Derivative
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The derivative of a function of a real variable measures the sensitivity to change of the function value with respect to a change in its argument. Derivatives are a tool of calculus. For example, the derivative of the position of an object with respect to time is the objects velocity. The derivative of a function of a variable at a chosen input value. The tangent line is the best linear approximation of the function near that input value, for this reason, the derivative is often described as the instantaneous rate of change, the ratio of the instantaneous change in the dependent variable to that of the independent variable. Derivatives may be generalized to functions of real variables. In this generalization, the derivative is reinterpreted as a transformation whose graph is the best linear approximation to the graph of the original function. The Jacobian matrix is the matrix that represents this linear transformation with respect to the basis given by the choice of independent and dependent variables and it can be calculated in terms of the partial derivatives with respect to the independent variables. For a real-valued function of variables, the Jacobian matrix reduces to the gradient vector. The process of finding a derivative is called differentiation, the reverse process is called antidifferentiation. The fundamental theorem of calculus states that antidifferentiation is the same as integration, differentiation and integration constitute the two fundamental operations in single-variable calculus. Differentiation is the action of computing a derivative, the derivative of a function y = f of a variable x is a measure of the rate at which the value y of the function changes with respect to the change of the variable x. It is called the derivative of f with respect to x, If x and y are real numbers, and if the graph of f is plotted against x, the derivative is the slope of this graph at each point. The simplest case, apart from the case of a constant function, is when y is a linear function of x. This formula is true because y + Δ y = f = m + b = m x + m Δ x + b = y + m Δ x. Thus, since y + Δ y = y + m Δ x and this gives an exact value for the slope of a line. If the function f is not linear, however, then the change in y divided by the change in x varies, differentiation is a method to find an exact value for this rate of change at any given value of x. The idea, illustrated by Figures 1 to 3, is to compute the rate of change as the value of the ratio of the differences Δy / Δx as Δx becomes infinitely small
24.
United States dollar
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The United States dollar is the official currency of the United States and its insular territories per the United States Constitution. It is divided into 100 smaller cent units, the circulating paper money consists of Federal Reserve Notes that are denominated in United States dollars. The U. S. dollar was originally commodity money of silver as enacted by the Coinage Act of 1792 which determined the dollar to be 371 4/16 grain pure or 416 grain standard silver, the currency most used in international transactions, it is the worlds primary reserve currency. Several countries use it as their currency, and in many others it is the de facto currency. Besides the United States, it is used as the sole currency in two British Overseas Territories in the Caribbean, the British Virgin Islands and Turks and Caicos Islands. A few countries use the Federal Reserve Notes for paper money, while the country mints its own coins, or also accepts U. S. coins that can be used as payment in U. S. dollars. After Nixon shock of 1971, USD became fiat currency, Article I, Section 8 of the U. S. Constitution provides that the Congress has the power To coin money, laws implementing this power are currently codified at 31 U. S. C. Section 5112 prescribes the forms in which the United States dollars should be issued and these coins are both designated in Section 5112 as legal tender in payment of debts. The Sacagawea dollar is one example of the copper alloy dollar, the pure silver dollar is known as the American Silver Eagle. Section 5112 also provides for the minting and issuance of other coins and these other coins are more fully described in Coins of the United States dollar. The Constitution provides that a regular Statement and Account of the Receipts and that provision of the Constitution is made specific by Section 331 of Title 31 of the United States Code. The sums of money reported in the Statements are currently being expressed in U. S. dollars, the U. S. dollar may therefore be described as the unit of account of the United States. The word dollar is one of the words in the first paragraph of Section 9 of Article I of the Constitution, there, dollars is a reference to the Spanish milled dollar, a coin that had a monetary value of 8 Spanish units of currency, or reales. In 1792 the U. S. Congress passed a Coinage Act, Section 20 of the act provided, That the money of account of the United States shall be expressed in dollars, or units. And that all accounts in the offices and all proceedings in the courts of the United States shall be kept and had in conformity to this regulation. In other words, this act designated the United States dollar as the unit of currency of the United States, unlike the Spanish milled dollar the U. S. dollar is based upon a decimal system of values. Both one-dollar coins and notes are produced today, although the form is significantly more common
25.
Demand curve
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In economics, the demand curve is the graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at any given price. It is a representation of a market demand schedule. The demand curve for all consumers together follows from the curve of every individual consumer. Demand curves are used to estimate behaviors in competitive markets, and are combined with supply curves to estimate the equilibrium price. In a monopolistic market, the curve facing the monopolist is simply the market demand curve. Demand curves are considered as theoretical structures that are expected to exist in the real world. According to convention, the curve is drawn with price on the vertical axis. The function actually plotted is the demand function. The demand curve usually slopes downwards from left to right, that is, the negative slope is often referred to as the law of demand, which means people will buy more of a service, product, or resource as its price falls. The demand curve is related to the marginal utility curve, since the one is willing to pay depends on the utility. However, the demand depends on the income of an individual while the utility does not. Thus it may change due to change in demand for other commodities. However, with Veblen goods, such as symbols, the utility value of the good is largely the price and demand is higher at higher prices. The demand curve is often graphed as a line of the form Q = a − bP where a and b are parameters. The constant a embodies the effects of all other than price that affect demand. If income were to change, for example, the effect of the change would be represented by a change in the value of a, the constant b is the slope of the demand curve and shows how the price of the good affects the quantity demanded. The graph of the demand curve uses the inverse function in which price is expressed as a function of quantity. The standard form of the equation can be converted to the inverse equation by solving for P or P = a/b − Q/b
26.
Game theory
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Game theory is the study of mathematical models of conflict and cooperation between intelligent rational decision-makers. Game theory is used in economics, political science, and psychology, as well as logic, computer science. Originally, it addressed zero-sum games, in one persons gains result in losses for the other participants. Today, game theory applies to a range of behavioral relations, and is now an umbrella term for the science of logical decision making in humans, animals. Modern game theory began with the idea regarding the existence of equilibria in two-person zero-sum games. Von Neumanns original proof used Brouwer fixed-point theorem on continuous mappings into compact convex sets and his paper was followed by the 1944 book Theory of Games and Economic Behavior, co-written with Oskar Morgenstern, which considered cooperative games of several players. The second edition of this provided an axiomatic theory of expected utility. This theory was developed extensively in the 1950s by many scholars, Game theory was later explicitly applied to biology in the 1970s, although similar developments go back at least as far as the 1930s. Game theory has been recognized as an important tool in many fields. With the Nobel Memorial Prize in Economic Sciences going to game theorist Jean Tirole in 2014, John Maynard Smith was awarded the Crafoord Prize for his application of game theory to biology. Early discussions of examples of two-person games occurred long before the rise of modern, the first known discussion of game theory occurred in a letter written by Charles Waldegrave, an active Jacobite, and uncle to James Waldegrave, a British diplomat, in 1713. In this letter, Waldegrave provides a mixed strategy solution to a two-person version of the card game le Her. James Madison made what we now recognize as an analysis of the ways states can be expected to behave under different systems of taxation. In 1913 Ernst Zermelo published Über eine Anwendung der Mengenlehre auf die Theorie des Schachspiels and it proved that the optimal chess strategy is strictly determined. This paved the way for more general theorems, the Danish mathematician Zeuthen proved that the mathematical model had a winning strategy by using Brouwers fixed point theorem. In his 1938 book Applications aux Jeux de Hasard and earlier notes, Borel conjectured that non-existence of mixed-strategy equilibria in two-person zero-sum games would occur, a conjecture that was proved false. Game theory did not really exist as a field until John von Neumann published a paper in 1928. Von Neumanns original proof used Brouwers fixed-point theorem on continuous mappings into compact convex sets and his paper was followed by his 1944 book Theory of Games and Economic Behavior co-authored with Oskar Morgenstern
27.
Price elasticity of demand
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Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price, ceteris paribus. More precisely, it gives the change in quantity demanded in response to a one percent change in price. Price elasticities are almost always negative, although tend to ignore the sign even though this can lead to ambiguity. Only goods which do not conform to the law of demand, in general, the demand for a good is said to be inelastic when the PED is less than one, that is, changes in price have a relatively small effect on the quantity of the good demanded. The demand for a good is said to be elastic when its PED is greater than one, revenue is maximized when price is set so that the PED is exactly one. The PED of a good can also be used to predict the incidence of a tax on that good, various research methods are used to determine price elasticity, including test markets, analysis of historical sales data and conjoint analysis. It is a measure of responsiveness of the quantity of a raw good or service demanded to changes in its price, for example, if the price increases by 5% and quantity demanded decreases by 5%, then the elasticity at the initial price and quantity = −5%/5% = −1. The only classes of goods which have a PED of greater than 0 are Veblen and Giffen goods, although the PED is negative for the vast majority of goods and services, economists often refer to price elasticity of demand as a positive value. The latter type of elasticity measure is called a cross-price elasticity of demand, as the difference between the two prices or quantities increases, the accuracy of the PED given by the formula above decreases for a combination of two reasons. First, the PED for a good is not necessarily constant, as explained below, PED can vary at different points along the demand curve, due to its percentage nature. Elasticity is not the thing as the slope of the demand curve. Second, percentage changes are not symmetric, instead, the change between any two values depends on which one is chosen as the starting value and which as the ending value. For example, if quantity demanded increases from 10 units to 15 units, but if quantity demanded decreases from 15 units to 10 units, the percentage change is −33. 3%, i. e. ÷15. Two alternative elasticity measures avoid or minimise these shortcomings of the elasticity formula, point-price elasticity. Point elasticity of demand method is used to change in demand within same demand curve. One way to avoid the accuracy problem described above is to minimise the difference between the starting and ending prices and quantities. However, the point-price elasticity can be computed if the formula for the demand function, Q d = f, is known so its derivative with respect to price, d Q d / d P. Loosely speaking, this gives an average elasticity for the section of the actual demand curve—i. e, the arc of the curve—between the two points
28.
Company
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A company, abbreviated co. is a legal entity made up of an association of people, be they natural, legal, or a mixture of both, for carrying on a commercial or industrial enterprise. Company members share a common purpose and unite in order to focus their various talents and organize their collectively available skills or resources to achieve specific, because companies are legal persons, they also may associate and register themselves as companies – often known as a corporate group. When the company closes it may need a certificate to avoid further legal obligations. A company can be defined as a person, invisible, intangible, created by or under law, with a discrete legal personality, perpetual succession. It is not affected by the death, insanity, or insolvency of an individual member, by 1303, the word referred to trade guilds. Usage of company to mean business association was first recorded in 1553, in English law and in legal jurisdictions based upon it, a company is a body corporate or corporation company registered under the Companies Acts or similar legislation. It may be referred to as a firm, in the US, a company is not necessarily a corporation. Commonly used where companies are formed for non-commercial purposes, such as clubs or charities, the members guarantee the payment of certain amounts if the company goes into insolvent liquidation, but otherwise they have no economic rights in relation to the company. This type of company is common in England, a company limited by guarantee may be with or without having share capital. The most common form of used for business ventures. This type of company is common in England and many English-speaking countries, a company limited by shares may be a publicly traded company or a privately held company. A company limited by guarantee with a share capital, a hybrid entity, usually used where the company is formed for non-commercial purposes, but the activities of the company are partly funded by investors who expect a return. This type of company may no longer be formed in the UK, a company—statutorily authorized in certain states—that is characterized by limited liability, management by members or managers, and limitations on ownership transfer, i. e. L. L. C. LLC structure has been called hybrid in that it combines the characteristics of a corporation, an unlimited company with or without a share capital. A hybrid entity, a company where the liability of members or shareholders for the debts of the company are not limited, in this case doctrine of veil of incorporation does not apply. Less common types of companies are, Companies formed by letters patent, most corporations by letters patent are corporations sole and not companies as the term is commonly understood today. Before the passing of modern companies legislation, these were the types of companies. Now they are rare, except for very old companies that still survive
29.
Market structure
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In economics, market structure is an organisational and other characteristics of a market. Monopolistic competition, a type of competition such that many producers sell products or services that are differentiated from one another. In monopolistic competition, a firm takes the prices charged by its rivals as given and this market structure exists when there are multiple sellers who are attempting to seem different than each other. Oligopoly, in which a market is run by a number of firms that together control the majority of the market share. Duopoly, a case of an oligopoly with two firms. Monopsony, when there is only a single buyer in a market, oligopsony, a market where many sellers can be present but meet only a few buyers. Monopoly, where there is only one provider of a product or service, natural monopoly, a monopoly in which economies of scale cause efficiency to increase continuously with the size of the firm. A firm is a natural if it is able to serve the entire market demand at a lower cost than any combination of two or more smaller, more specialized firms. The elements of Market Structure include the number and size distribution of firms, entry conditions, and these somewhat abstract concerns tend to determine some but not all details of a specific concrete market system where buyers and sellers actually meet and commit to trade. In other words, competition can align the seller’s interests with the interests and can cause the seller to reveal his true costs. The correct sequence of the structure from most to least competitive is perfect competition, imperfect competition, oligopoly
30.
Pricing
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Pricing is the process whereby a business sets the price at which it will sell its products and services, and may be part of the businesss marketing plan. Pricing is an aspect of financial modeling and is one of the four Ps of the marketing mix. Price is the revenue generating element amongst the four Ps. However, the other Ps of marketing will contribute to decreasing price elasticity and so enable price increases to drive greater revenue, automated systems require more setup and maintenance but may prevent pricing errors. The needs of the consumer can be converted into demand only if the consumer has the willingness, thus, pricing is the most important concept in the field of marketing, it is used as a tactical decision in response to comparing market situations. Where manufacturing is expensive, distribution is exclusive, and the product is supported by advertising and promotional campaigns. Price can act as a substitute for product quality, effective promotions, from the marketers point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the economic surplus to the producer. A good pricing strategy would be the one which could balance between the floor and the price ceiling. Marketers develop an overall pricing strategy that is consistent with the organisations mission and this pricing strategy typically becomes part of the companys overall long -term strategic plan. The strategy is designed to provide guidance to price-setters and ensures that the pricing strategy is consistent with other elements of the marketing plan. In some cases, prices might be set to de-market, revenue-oriented pricing, - where the marketer seeks to maximise the profits or simply to cover costs and break even. For example, dynamic pricing (also known as yield management is a form of revenue oriented pricing, customer-oriented pricing, where the objective is to maximise the number of customers, encourage cross-selling opportunities or to recognise different levels in the customers ability to pay. Value-based pricing, occurs where the company uses prices to market value or associates price with the desired value position in the mind of the buyer. The aim of value-based pricing is to reinforce the overall positioning strategy e. g. premium pricing posture to pursue or maintain a luxury image, relationship-oriented pricing, where the marketer sets prices in order to build or maintain relationships with existing or potential customers. Socially-oriented pricing, Where the objective is to encourage or discourage specific social attitudes, E. g. high tarrifs on tobacco to discourage smoking. When decision-makers have determined the broad approach to pricing, they turn their attention to pricing tactics, tactical pricing decisions are shorter term prices, designed to accomplish specific short-term goals. The tactical approach to pricing may vary from time to time, accordingly, a number of different pricing tactics may be employed in the course of a single planning period or across a single year
31.
Rational choice theory
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Rational choice theory, also known as choice theory or rational action theory, is a framework for understanding and often formally modeling social and economic behavior. The basic premise of rational choice theory is that social behavior results from the behavior of individual actors. The theory also focuses on the determinants of the individual choices, Rational choice theory then assumes that an individual has preferences among the available choice alternatives that allow them to state which option they prefer. These preferences are assumed to be complete and transitive, Rationality is widely used as an assumption of the behavior of individuals in microeconomic models and analyses and appears in almost all economics textbook treatments of human decision-making. It is also used in science, sociology, and philosophy. A particular version of rationality is instrumental rationality, which involves seeking the most cost-effective means to achieve a goal without reflecting on the worthiness of that goal. Gary Becker was a proponent of applying rational actor models more widely. Becker won the 1992 Nobel Memorial Prize in Economic Sciences for his studies of discrimination, crime, the concept of rationality used in rational choice theory is different from the colloquial and most philosophical use of the word. Colloquially, rational behaviour typically means sensible, predictable, or in a thoughtful, Rational choice theory uses a narrower definition of rationality. At its most basic level, behavior is if it is goal-oriented, reflective. This contrasts with behavior that is random, impulsive, conditioned, early neoclassical economists writing about rational choice, including William Stanley Jevons, assumed that agents make consumption choices so as to maximize their happiness, or utility. Contemporary theory bases rational choice on a set of axioms that need to be satisfied. It mandates just a consistent ranking of the alternatives, individuals choose the best action according to their personal preferences and the constraints facing them. Rational choice theorists do not claim that the theory describes the choice process, an assumption often added to the rational choice paradigm is that individual preferences are self-interested, in which case the individual can be referred to as a homo economicus. Such an individual acts as if balancing costs against benefits to arrive at action that maximizes personal advantage, in this view, the only way to judge the success of a hypothesis is empirical tests. To use an example from Milton Friedman, if a theory says that the behavior of the leaves of a tree is explained by their rationality passes the empirical test. Without specifying the individuals goal or preferences it may not be possible to empirically test, or falsify, however, the predictions made by a specific version of the theory are testable. In recent years, the most prevalent version of rational choice theory, economists are learning from other fields, such as psychology, and are enriching their theories of choice in order to get a more accurate view of human decision-making
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Supply and demand
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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
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International Standard Book Number
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The International Standard Book Number is a unique numeric commercial book identifier. An ISBN is assigned to each edition and variation of a book, for example, an e-book, a paperback and a hardcover edition of the same book would each have a different ISBN. The ISBN is 13 digits long if assigned on or after 1 January 2007, the method of assigning an ISBN is nation-based and varies from country to country, often depending on how large the publishing industry is within a country. The initial ISBN configuration of recognition was generated in 1967 based upon the 9-digit Standard Book Numbering created in 1966, the 10-digit ISBN format was developed by the International Organization for Standardization and was published in 1970 as international standard ISO2108. Occasionally, a book may appear without a printed ISBN if it is printed privately or the author does not follow the usual ISBN procedure, however, this can be rectified later. Another identifier, the International Standard Serial Number, identifies periodical publications such as magazines, the ISBN configuration of recognition was generated in 1967 in the United Kingdom by David Whitaker and in 1968 in the US by Emery Koltay. The 10-digit ISBN format was developed by the International Organization for Standardization and was published in 1970 as international standard ISO2108, the United Kingdom continued to use the 9-digit SBN code until 1974. The ISO on-line facility only refers back to 1978, an SBN may be converted to an ISBN by prefixing the digit 0. For example, the edition of Mr. J. G. Reeder Returns, published by Hodder in 1965, has SBN340013818 -340 indicating the publisher,01381 their serial number. This can be converted to ISBN 0-340-01381-8, the check digit does not need to be re-calculated, since 1 January 2007, ISBNs have contained 13 digits, a format that is compatible with Bookland European Article Number EAN-13s. An ISBN is assigned to each edition and variation of a book, for example, an ebook, a paperback, and a hardcover edition of the same book would each have a different ISBN. The ISBN is 13 digits long if assigned on or after 1 January 2007, a 13-digit ISBN can be separated into its parts, and when this is done it is customary to separate the parts with hyphens or spaces. Separating the parts of a 10-digit ISBN is also done with either hyphens or spaces, figuring out how to correctly separate a given ISBN number is complicated, because most of the parts do not use a fixed number of digits. ISBN issuance is country-specific, in that ISBNs are issued by the ISBN registration agency that is responsible for country or territory regardless of the publication language. Some ISBN registration agencies are based in national libraries or within ministries of culture, in other cases, the ISBN registration service is provided by organisations such as bibliographic data providers that are not government funded. In Canada, ISBNs are issued at no cost with the purpose of encouraging Canadian culture. In the United Kingdom, United States, and some countries, where the service is provided by non-government-funded organisations. Australia, ISBNs are issued by the library services agency Thorpe-Bowker
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Wolfram Demonstrations Project
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It is hosted by Wolfram Research, whose stated goal is to bring computational exploration to the widest possible audience. At its launch, it contained 1300 demonstrations but has grown to over 10,000, the site won a Parents Choice Award in 2008. Each Demonstration also has a description of the concept. Demonstrations are now easily embeddable into any website or blog, each Demonstration page includes a snippet of JavaScript code in the Share section of the sidebar. The website is organized by topic, for example, science, mathematics, computer science, art, biology and they cover a variety of levels, from elementary school mathematics to much more advanced topics such as quantum mechanics and models of biological organisms. The site is aimed at educators and students, as well as researchers who wish to present their ideas to the broadest possible audience. Wolfram Researchs staff organizes and edits the Demonstrations, which may be created by any user of Mathematica, then freely published, the Demonstrations are open-source, which means that they not only demonstrate the concept itself but also show how to implement it. The use of the web to transmit small interactive programs is reminiscent of Suns Java applets, Adobes Flash, however, those creating Demonstrations have access to the algorithmic and visualization capabilities of Mathematica making it more suitable for technical demonstrations. The Demonstrations Project also has similarities to user-generated content websites like Wikipedia and its business model is similar to Adobes Acrobat and Flash strategy of charging for development tools but providing a free reader
