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The mainstream view is that market economies are generally believed to be closer to efficient than other known alternatives [4] and that government involvement is necessary at the macroeconomic level (via fiscal policy and monetary policy) to counteract the economic cycle – following Keynesian economics. At the microeconomic level there is ...
Also called resource cost advantage. The ability of a party (whether an individual, firm, or country) to produce a greater quantity of a good, product, or service than competitors using the same amount of resources. absorption The total demand for all final marketed goods and services by all economic agents resident in an economy, regardless of the origin of the goods and services themselves ...
In economics, the field of public finance deals with three broad areas: macroeconomic stabilization, the distribution of income and wealth, and the allocation of resources. . Much of the study of the allocation of resources is devoted to finding the conditions under which particular mechanisms of resource allocation lead to Pareto efficient outcomes, in which no party's situation can be ...
Microeconomics also deals with the effects of economic policies (such as changing taxation levels) on microeconomic behavior and thus on the aforementioned aspects of the economy. [6] Particularly in the wake of the Lucas critique , much of modern macroeconomic theories has been built upon microfoundations —i.e., based upon basic assumptions ...
Allocation efficiency occurs when there is an optimal distribution of goods and services, considering consumer's preference. When the price equals marginal cost of production, the allocation efficiency is at the output level. This is because the optimal distribution is achieved when the marginal utility of good equals the marginal cost.
The earlier term for the discipline was "political economy", but since the late 19th century, it has commonly been called "economics". [22] The term is ultimately derived from Ancient Greek οἰκονομία (oikonomia) which is a term for the "way (nomos) to run a household (oikos)", or in other words the know-how of an οἰκονομικός (oikonomikos), or "household or homestead manager".
An economic system is a system of production, resource allocation, exchange and distribution of goods and services in a society or a given geographic area. In one view, every economic system represents an attempt to solve three fundamental and interdependent problems:
Let us define a price quasi-equilibrium with transfers as an allocation (,), a price vector p, and a vector of wealth levels w (achieved by lump-sum transfers) with = + (where is the aggregate endowment of goods and is the production of firm j) such that: