Positive And Normative Economics
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Learn the difference between these two declarative statements and what they mean in the world of economics and finance.
Financialization is an increase in the size and importance of a country's financial sector relative to its overall economy.
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.
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.
Nash Equilibrium is a key concept of game theory, which helps explain how people and groups approach complex decisions. Named after renowned mathematician John Nash, the idea of Nash Equilibrium has been used in such diverse fields as international relations, psychology and economics. Game theory in general looks at how individuals or groups make choices that will in turn affect the choices of other parties.
The term “open market operations” refers to a monetary policy tool in which central banks buy and sell bonds to regulate the money supply in the economy. The United States employs open market operations through the Federal Reserve Bank.
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