Economics

Various economists have formulated several theories in a bid to try and demystify the concept of business cycle. 1. Models With Money Inflation is often considered a consequence of the business cycle. When monetary policy becomes encouraging, the economy grows…

Inflation Inflation is the persistent increase in the general price level of goods and services in an economy over a given period of time.  Fewer goods and services are bought when price levels rise hence the reduction in purchasing power….

[vsw id=”IP3HiHY1YA0″ source=”youtube” width=”611″ height=”344″ autoplay=”no”] Since inflation is impactful on the general price level of an economy, it is tantamount to measure inflation using a price index. As such, it is important to understand how a price index is…

Monetary policy and fiscal policy refer to government policies and tools used to control macroeconomic variables and financial markets. Whenever economic activities start to slow down, these tools are used to accelerate growth. Similarly, when the economy starts to overheat,…

[vsw id=”IP3HiHY1YA0″ source=”youtube” width=”611″ height=”344″ autoplay=”no”] Resource Use During a Recession Resources required for the production of goods and services are closely related to the business cycle. Aggregate demand reduces with the beginning of a downturn resulting in the accumulation…

Elasticity measures the sensitivity or responsiveness of one variable to another. There are three main different forms of elasticity – price elasticity, income elasticity, and cross-price elasticity Price Elasticity Price elasticity is measured in percentage changes in each of the…

Substitution Effect A substitute is a good that satisfies the same need as another good, e.g.,  broccoli and cauliflower. The substitution effect states that a good becomes more of a bargain relative to other goods as its price declines; therefore,…

Break-even Point of Production The break-even point can be defined as the production and sales levels of a given product at which the revenue generated from the sales is perfectly equal to the production cost. At this point, the company…

Normal Goods Normal goods are goods whose demand increases with an increase in consumers’ income. Note that the rate at which demand increases is lower than the rate at which income increases. The rate eventually slows down with further increments…

The law of diminishing marginal returns states that the marginal return from an increased input, say labor, will decrease when this input is added continually to a fixed capital base. Example A good example is that of a factory that…