Unconditional Vs Conditional Probabilities
Unconditional probability (also known as marginal probability) is simply the probability that an event occurs without considering any other preceding events. In other words, unconditional probabilities are not dependent on the occurrence of any other events; they are ‘stand-alone’ events….
Probability Rules
[vsw id=”hu47ZbsskEw” source=”youtube” width=”611″ height=”344″ autoplay=”no”] Probability rules are the concepts and facts that must be taken into account while evaluating the probabilities of various events. The CFA curriculum requires candidates to master 3 main rules of probability. These are…
Application of Probability Rules
Probability rules are the concepts and facts that must be taken into account while evaluating the probabilities of various events. The CFA curriculum requires candidates to master 3 main rules of probability. These are the multiplication rule, the addition rule,…
Independent vs. Dependent Events
[vsw id=”hu47ZbsskEw” source=”youtube” width=”611″ height=”344″ autoplay=”no”] Two or more events are independent if the occurrence of one event has no influence on the occurrence of the other event(s). Let us put this in annotations:
Unconditional Probability Using the Total Probability Rule
We can use the total probability rule to determine the unconditional probability of an event in terms of conditional probabilities on certain scenarios.
Price Elasticity, Income Elasticity and Cross Elasticity
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 and Income Effects
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,…
Normal Goods and Inferior Goods
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
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…
Break-even and Shut-down Point of Production
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…
