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Isoquant Isocost Graph
An isoquant (derived from quantity and the Greek word iso, meaning equal), in microeconomics, is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs. The x and y axis on an isoquant represent two relevant inputs, which are usually a factor of production such as labour, capital, land, or organisation. An isoquant may also be known as an “Iso-Product Curve”, or an “Equal Product Curve”. Isoquant vs. Indifference Curve While an indifference curve mapping helps to solve the utility-maximizing problem of consumers, the isoquant mapping deals with the cost-minimization and profit and output maximisation problem of producers. Indifference curves further differ to isoquants, in that they cannot offer a precise measurement of utility, only how it is relevant to a baseline. Whereas, from an isoquant, the product can be measured accurately in physical units, and it is known by exactly how ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Isoquant Map
An isoquant (derived from quantity and the Greek word iso, meaning equal), in microeconomics, is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs. The x and y axis on an isoquant represent two relevant inputs, which are usually a factor of production such as labour, capital, land, or organisation. An isoquant may also be known as an “Iso-Product Curve”, or an “Equal Product Curve”. Isoquant vs. Indifference Curve While an indifference curve mapping helps to solve the utility-maximizing problem of consumers, the isoquant mapping deals with the cost-minimization and profit and output maximisation problem of producers. Indifference curves further differ to isoquants, in that they cannot offer a precise measurement of utility, only how it is relevant to a baseline. Whereas, from an isoquant, the product can be measured accurately in physical units, and it is known by exactly h ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Isoquant X Vs Y Input Intensity
An isoquant (derived from quantity and the Greek word iso, meaning equal), in microeconomics, is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs. The x and y axis on an isoquant represent two relevant inputs, which are usually a factor of production such as labour, capital, land, or organisation. An isoquant may also be known as an “Iso-Product Curve”, or an “Equal Product Curve”. Isoquant vs. Indifference Curve While an indifference curve mapping helps to solve the utility-maximizing problem of consumers, the isoquant mapping deals with the cost-minimization and profit and output maximisation problem of producers. Indifference curves further differ to isoquants, in that they cannot offer a precise measurement of utility, only how it is relevant to a baseline. Whereas, from an isoquant, the product can be measured accurately in physical units, and it is known by exactly how ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Lerner Diagram
Factor price equalization is an economic theory, by Paul A. Samuelson (1948), which states that the prices of identical factors of production, such as the wage rate or the rent of capital, will be equalized across countries as a result of international trade in commodities. The theorem assumes that there are two goods and two factors of production, for example capital and labour. Other key assumptions of the theorem are that each country faces the same commodity prices, because of free trade in commodities, uses the same technology for production, and produces both goods. Crucially these assumptions result in factor prices being equalized across countries without the need for factor mobility, such as migration of labor or capital flows. A simple summary of this theory is when the prices of the output goods are equalized between countries as they move to free trade, then the prices of the factors (capital and labor) will also be equalized between countries. Whichever factor receives ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Production Theory Basics
Production is the process of combining various inputs, both material (such as metal, wood, glass, or plastics) and immaterial (such as plans, or knowledge) in order to create output. Ideally this output will be a good or service which has value and contributes to the utility of individuals. The area of economics that focuses on production is called production theory, and it is closely related to the consumption (or consumer) theory of economics. The production process and output directly result from productively utilising the original inputs (or factors of production). Known as primary producer goods or services, land, labour, and capital are deemed the three fundamental production factors. These primary inputs are not significantly altered in the output process, nor do they become a whole component in the product. Under classical economics, materials and energy are categorised as secondary factors as they are byproducts of land, labour and capital. Delving further, primary factor ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Microeconomics
Microeconomics is a branch of mainstream economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics focuses on the study of individual markets, sectors, or industries as opposed to the national economy as whole, which is studied in macroeconomics. One goal of microeconomics is to analyze the market mechanisms that establish relative prices among goods and services and allocate limited resources among alternative uses. Microeconomics shows conditions under which free markets lead to desirable allocations. It also analyzes market failure, where markets fail to produce efficient results. While microeconomics focuses on firms and individuals, macroeconomics focuses on the sum total of economic activity, dealing with the issues of growth, inflation, and unemployment and with national policies relating to these issues. Microeconomics also deal ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Expansion Path
In economics, an expansion path (also called a scale lineJain, TR; Khanna OP (2008). ''Economics.'' VK Publications, ) is a path connecting optimal input combinations as the scale of production expands.Hirschey, Mark (2008). ''Managerial economics.'' Cengage Learning, which is often represented as a curve in a graph with quantities of two inputs, typically physical capital and labor, plotted on the axes. A producer seeking to produce a given number of units of a product in the cheapest possible way chooses the point on the expansion path that is also on the isoquant associated with that output level.Prusty, Sadananda (2010). ''Managerial Economics.'' PHI Learning Pvt. Ltd., Economists Alfred Stonier and Douglas Hague defined “expansion path” as "that line which reflects the least–cost method of producing different levels of output, when factor prices remain constant."Stonier, Alfred W.; Hague, Douglas C. (1980). ''A textbook of economic theory, 5th edition.'' Longmans ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Rational Choice Theory
Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to political economist and philosopher, Adam Smith. The theory postulates that an individual will perform a cost-benefit analysis to determine whether an option is right for them.Gary Browning, Abigail Halcli, Frank Webster (2000). ''Understanding Contemporary Society: Theories of the Present'', London: SAGE Publications. It also suggests that an individual's self-driven rational actions will help better the overall economy. Rational choice theory looks at three concepts: rational actors, self interest and the invisible hand. Rationality can be used as an assumption for the behaviour of individuals in a wide range of contexts outside of economics. It is also used in political science, sociology, and philosophy. Overview The basic premise of rational choice theory is that the decisions made by individual ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
First Order Condition
In calculus, a derivative test uses the derivatives of a function to locate the critical points of a function and determine whether each point is a local maximum, a local minimum, or a saddle point. Derivative tests can also give information about the concavity of a function. The usefulness of derivatives to find extrema is proved mathematically by Fermat's theorem of stationary points. First-derivative test The first-derivative test examines a function's monotonic properties (where the function is increasing or decreasing), focusing on a particular point in its domain. If the function "switches" from increasing to decreasing at the point, then the function will achieve a highest value at that point. Similarly, if the function "switches" from decreasing to increasing at the point, then it will achieve a least value at that point. If the function fails to "switch" and remains increasing or remains decreasing, then no highest or least value is achieved. One can examine a func ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Budget Constraint
In economics, a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices . Both concepts have a ready graphical representation in the two-good case. The consumer can only purchase as much as their income will allow, hence they are constrained by their budget. The equation of a budget constraint is P_x x+P_y y=m where P_x is the price of good X, and P_y is the price of good Y, and m = income. Soft budget constraint The concept of soft budget constraints is commonly applied to economies in transition. This theory was originally proposed by János Kornai in 1979. It was used to explain the "economic behavior in socialist economies marked by shortage”. In the socialist transition economy there are soft budget constraint on firms because of subsidies, c ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Scarcity
In economics, scarcity "refers to the basic fact of life that there exists only a finite amount of human and nonhuman resources which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good."Samuelson, P. Anthony., Samuelson, W. (1980). Economics. 11th ed. / New York: McGraw-Hill. If the conditions of scarcity didn't exist and an "infinite amount of every good could be produced or human wants fully satisfied ... there would be no economic goods, i.e. goods that are relatively scarce..." Scarcity is the limited availability of a commodity, which may be in demand in the market or by the commons. Scarcity also includes an individual's lack of resources to buy commodities. The opposite of scarcity is abundance. Scarcity plays a key role in economic theory, and it is essential for a "proper definition of economics itself."Montani G. (1987) Scarcity. In: Palgrave Macmillan (eds) ''The New Palgrave Dictionary of Economics''. Palgrav ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Returns To Scale
In economics, returns to scale describe what happens to long-run returns as the scale of production increases, when all input levels including physical capital usage are variable (able to be set by the firm). The concept of returns to scale arises in the context of a firm's production function. It explains the long-run linkage of the rate of increase in output (production) relative to associated increases in the inputs (factors of production). In the long run, all factors of production are variable and subject to change in response to a given increase in production scale. While economies of scale show the effect of an increased output level on unit costs, returns to scale focus only on the relation between input and output quantities. There are three possible types of returns to scale: increasing returns to scale, constant returns to scale, and diminishing (or decreasing) returns to scale. If output increases by the same proportional change as all inputs change then there are cons ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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