Understanding Production Costs: Short-Term and Long-Term Analysis
Theoretical Support Document No. 7: Production Costs
Total Cost Curves: Short Term
Cost curves illustrate the minimum expense to achieve various production levels, encompassing both explicit and implicit costs. Explicit costs are direct outlays for inputs, while implicit costs relate to the value of company-owned resources used in production (see Case 1).
In the short term, at least one factor of production is fixed. Total fixed costs (TFC) are constant obligations. Total variable costs (TVC) fluctuate
Read MoreUnderstanding Market Structures: Competition to Monopoly
Different Types of Markets
Not all markets are equal. When we buy something, we face different market types. Internet companies, for example, have few competitors, but suppliers offer similar products, leading to competition. This competition causes suppliers to behave differently depending on the market, and strategies are developed to compete, including price changes. Fewer firms mean less competition and a greater possibility of price increases. Consumer protection laws exist to regulate these
Read MoreUnderstanding Supply: Factors, Costs, Elasticity, and Market Dynamics
Supply in Economics
Supply refers to the quantity of goods or services that producers are willing and able to sell at various market prices. Supply can be analyzed at the individual level or for the entire market (total supply).
Factors Affecting Supply
Several key factors influence supply:
- Production Costs: These are the expenses incurred in producing goods or services.
- Technological Level: Advances in technology can impact production efficiency and costs.
- Price of the Good: The selling price of the
National Accounts, Income-Expenditure, Financial Markets, and IS-LM Model
National Accounts
GN = C + I + G + XQ, Y = C + S + T = C + I + G + XQ, (S-I) = (G-T) + (XQ), Yd = Y-T = C + S
Income-Expenditure Model (The Multiplier)
C = Co + C1(Yd), S = -Co + (1-C1)(Yd); On balance… Y = (1/(1-C1))(Co – C1*T + I + G)
Z = Co + C1(Yd) + I + G, C1 proportional to 1/(1-C1) consumption, 1-C1 proportional to savings
In equilibrium Z = Y, if Z > Y excess demand increases and, x is first consumed. Accumulated surplus stocks last, and consumption decreases.
1. Declining investment: Since
Read MoreInvestment Concepts, Cash Flows, and Project Evaluation
1. Concept of Investment
Definition of Investment
Investment is the disbursement made to earn income exceeding the initial payment.
Definition of Investor
An investor is a person or company that provides the expenditure required for investment. Investments can be classified based on the investor’s role:
- Economic Investment: The investor manages the project and directly produces goods or services.
- Financial Investment: The investor only provides capital.
- Social Investment: Aims for societal improvement
Understanding Financial Systems: Institutions, Markets, and Assets
Concept of the Financial System
A country’s financial system comprises institutions, media, and markets. Its objective is to facilitate resource allocation between economic units saving and those investing.
Composition of the Financial System
Institutions
Entities or agencies mediating between savers and investors, enabling resource transfer.
Media
Financial instruments (services or products) offered by intermediaries to facilitate fund transfers from savers to investors.
Markets
Venues where financial
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