Category: Microeconomics

Advertising is a crucial aspect of the business world, as it allows companies to promote their products and services, engage with potential consumers, and ultimately increase their sales and revenue. However, not everyone might be aware of the intricate economics behind advertising and how it functions within the broader context […]

We often find ourselves making decisions that impact not only ourselves but also those around us. Game theory is a field of study in economics that explores how rational decision-making can shape the outcome of these situations. It has become increasingly relevant as we face complex problems like climate change, […]

In a market economy, prices convey information to buyers and sellers. They signal the relative scarcity of goods and services and allow individuals to make choices that best satisfy their needs and preferences. However, when negative externalities are involved, prices may fail to reflect the true cost of producing or […]

The principal-agent problem is a common issue that arises when one person, the principal, hires another person, the agent, to act on their behalf. This problem occurs because the principal and the agent often have different interests, and the agent may not always act in the best interest of the […]

Competition law prohibits many controversial business practices. Although most economists agree that price-fixing among competitors should be illegal, other practices have less obvious effects. In this article, we are going to look at three of those controversial business strategies from an economic perspective. The three practices we’ll analyze are resale […]

The fact that public goods are non-excludable and non-rival often leads to the so-called free rider problem. The free rider problem describes a situation where people can receive the benefits of a good without paying their fair share or anything at all. However, this problem does not affect all public […]

The impact of a change in the price of a good or service on consumption can be broken down into two separate effects: the income effect and the substitution effect. The income effect describes the change in consumption caused by a change in purchasing power. Meanwhile, the substitution effect describes […]

In an economic context, competition describes a situation where consumers have the opportunity to choose between different products or suppliers. There are five factors that influence competition: product features, the number of sellers, barriers to entry, the availability of information, and location. Each of these factors has an effect on […]

In economic theory, production decisions are determined mainly by returns to scale and the development of per-unit costs. That means firms set the level of output based on how the profitability changes as they increase or decrease production. In that context, we can distinguish between (1) economies of scale, (2) […]

Cost curves are a useful tool to analyze firm behavior. We can use a graph that shows average fixed cost (AFC), average variable cost (AVC), marginal cost (MC) and average total cost (ATC) to illustrate them (see also types of costs). Although the size and slope of the curves may […]