What is the Free Rider Problem? A free rider is when someone enjoys the benefit of a good/service that they didn’t pay for. The free rider problem is that the good/service is thus underprovided. For if there is no penalty … Continue reading
Definition Moral hazard is when the risk/cost of an action is borne by someone other than the person doing the action. If a person receives all the benefit and none of the cost, they will engage in excessive risky behavior … Continue reading
Definition Heuristics are mental short cuts. They are ways that we can speed up the decision-making process. Rather than consider all the data, which is time consuming and difficult, someone takes some of the data and makes assumptions in regards … Continue reading
Introduction Marginal value is marginal benefit minus marginal cost. It is simply how much benefit you get per each additional unit of measure (marginal benefit) minus how much it costs you per each additional unit of measure (marginal cost). Example … Continue reading
What is Price? Price is how much it costs to purchase a good/service. Importance of Price Holding supply equal, price is a measurement of demand. The higher the demand, the higher the price is bid up. When the price increases, … Continue reading
Overview Free trade and protectionism are 2 approaches that a country can take in regards to trade. It details the ability for people to buy products and services from other countries and/or sell products and services to other countries. It … Continue reading
My Message to You I write these posts to help everyone and I care deeply about advancing financial education so people can make more informed choices. So I ask everyone to send me any questions they have. I want the … Continue reading
In Short As I mentioned in an earlier post, people should focus on what they are best at, and buy/trade for everything else they need. Specialization increases productive capacity and the total sum of knowledge of a community. Example 1 … Continue reading
In Short Compensating Differentials are a fancy way of saying that people are not willing to do horrible jobs unless they are paid more. Wages vs. Comfort If we take 2 jobs that require equal skill, on average the total … Continue reading
In Short A competitive market has many companies within it, with the price charged equal to the marginal cost. A monopolistic market has one company in it, with the price above its marginal cost. Competitive Market The whole idea of … Continue reading