Category: Microeconomics

Economies of scale (EoS) describe factors that drive production costs down as the volume of output increases. That means when a firm produces more output, its marginal costs of production decrease. There are two major types of EoS: internal and external. Internal economies of scale occur based on factors within […]

Economies of scale are factors that drive production costs down as the volume of output increases. That means the more output a firm produces, the lower its marginal costs of production are. We can distinguish between two main types of economies of scale: internal and external. Internal economies of scale […]

Adverse selection and moral hazard describe several different situations between two parties, where one of them is at a disadvantage due to a lack of information. That means the second party can be exploited because it does not have access to all relevant information (unlike the first party). In an […]

Price discrimination occurs when firms charge individual customers (or groups of customers) different prices for the same goods or services. That means, instead of charging all consumers one single price, they set different prices for different customers, depending on the maximum amount these customers are willing to pay. This allows the firms […]

In an economic context, a monopoly is a firm that has market power. That means, unlike firms in a competitive market, a monopolist has the ability to influence the market price of the good or service it sells. By definition, a firm is considered a monopoly if it is the […]

In economics, the market equilibrium is defined as a state in a market where there is no pressure for change. That is, there is no pressure for the price to move up or down. The primary forces behind this are supply and demand. As long as demand is greater than […]

The law of demand is one of the most fundamental economic concepts. It states that the quantity demanded of a good decreases as its price increases (and vice versa). While this holds true for most goods and services, there are some exceptions to the rule. Therefore, we can distinguish at […]

The tragedy of the commons is a famous economic story that illustrates why common resources tend to get overused from the perspective of society. The narrative is based on the assumption that every individual tries to get the highest possible benefit from a given resource. In the case of common […]

An oligopoly is a market structure where only a few sellers serve the entire market. Because of their strong position in the market, these firms have the power to influence the price. That means, unlike in a market with perfect competition, they are no longer price takers, but price makers. […]

Average fixed cost (i.e., AFC) is defined as the sum of all fixed costs of production divided by the quantity of output. That means AFC describes the share of all fixed costs that can be attributed to each unit. This is important for firms when it comes to production decisions […]