The most comprehensive educational resources for finance

Substitution and Income Effects

We earlier learned about the impact of changes in income and prices individually on the budget constraint ad demand of products. We will now study this in more detail. The change in quantity demanded due to price change can be decomposed into substitution effect and income effect. When the price of a commodity decreases, two

Consumer’s Equilibrium Bundle of Goods

We know that an individual will chose a bundle of goods that provide him the maximum utility from all the available choices. Based on the income and prices of products the choices available to the individual constitute the budget set. We can combine the indifference curve for the individual along with his budget constrain to

Budget Constraints

We learned that indifference curve shows the bundle of goods that provide same utility to an individual and an individual will always want to maximize the utility. However, most people are constrained by their income while making their choices. The budget constraint measures the combinations of purchases that a person can afford to make with

Consumer Choice Theory and Utility Theory

We assume that people understand the choices available to them and the prices associated with each choice. They consider the alternatives available to them and choose the best based on their preferences. When people have choices, it is possible to find the consumers preference for various products. Given a set of alternative products, we can

Types of Auctions

The equilibrium price for a product can also be determined using an auction where potential buyers place competitive bids for the product and the winner is determined though a pre-specified mechanism. There are different types of auctions: English Auction: An English auction is an ascending sequential bid auction. The bidders observe the bids of others

Excess Demand and Excess Supply

Based on the demand and supply curve, the market forces drive the price to its equilibrium level. There are two possibilities: 1) Excess Demand or 2) Excess Supply Excess supply is the situation where the price is above its equilibrium price. The quantity willing supplied by the producers is higher than the quantity demanded by

Shifts in Demand and Supply Curves

Shifts in Demand Curve We learned that the demand function expressed the quantity demanded as a function of price, while the other factors are held constant. If the price of a good or service changes, and there is no change in the other factors affecting demand such as income levels, and prices of related products,

Supply Function and Supply Curve

Supply is the ability and willingness of the firms to sell a specific quantity of a good or service at a given price in a given time period. This will depend on many factors such as the cost of machinery, labor cost, price of the product, prices of related products, number of firms producing the

Demand Function and Demand Curve

Demand refers to the ability and the willingness of consumers to buy certain quantities of goods and services at a given price during a given time period. Demand of a product is affected by many factors such as the cost of production, its price compared to other alternative products, or the income levels of consumers.

Deficit and Debt Ceiling Crisis

In this video, Sal Khan explains the basics of federal deficit and what debt ceiling is. It starts with the distinction between deficit and debt. After that it explains the concept of debt Ceiling. In the US, the congress has the pwer to limit how much cumulative debt the US can have. The current debt