Microeconomics Vs. Macroeconomics
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Economics is divided into two broad categories: micro and macro. Find out what the difference is between them and where they overlap.
Price elasticity of demand describes how changes in the cost of a product or service affect a company's revenue.
Comparative advantage is the ability of an individual, company or country to produce a good or service at a lower opportunity cost than its competitor. Having a comparative advantage doesn't mean that one entity is better than another at producing a good or service.
The wealth effect is a psychological phenomenon that causes people to spend more as the value of their assets rises. The premise is that when consumers' homes or investment portfolios increase in value, they feel more financially secure, so they increase their spending.
Absolute advantage is the ability of an individual, country or company to produce a good or service at a lower cost than any competitor. An entity with an absolute advantage requires fewer inputs and/or has more efficient processes, allowing it to undercut its competitors' prices and earn higher profits. Consider a small company that provides commercial real estate consulting services.
The discount rate is the interest rate you need to earn on a given amount of money today to end up with a given amount of money in the future. Let's say you need $1,000 one year from now to go on vacation. We can use the discount rate to determine how much money you would need to have today to have $1,000 in one year.
Most investment choices involve a tradeoff between risk and reward. The "Efficient Frontier" is a modern portfolio theory tool that shows investors the best possible return they can expect from their portfolio, given the level of volatility they're willing to accept.
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