The classical theory of employment states that in a labor market, employment for labors is determined by the interaction between demand and supply of labor, where the workers provide a constant supply of labor, while the employer makes demand for them. Classical economists believed that full employment prevailed in the economy through wage and price adjustments, and any … [Read more...] about Classical Theory of Employment
Economics
Principle of Marginal Rate of Substitution
Marginal Rate of Substitution Marginal rate of substitution (MRS) may be defined as the rate at which the consumer is willing to substitute one commodity for another without changing the level of satisfaction. In other words, MRS can also be defined as the amount of a commodity that a consumer is willing to trade off for another commodity, as long as the second commodity … [Read more...] about Principle of Marginal Rate of Substitution
Basic Classification of Economic Studies
Economics is a social science that deals with the study of how individuals, governmental bodies, firms, and nations make decisions in allocating scarce resources in order to satisfy their unlimited wants and desires. It is a study of production and consumption of goods and services, and the transfer of wealth to produce and obtain those goods and services. Economics is … [Read more...] about Basic Classification of Economic Studies
The Paradox of Thrift
Paradox of Thrift is a concept that was first presented by Bernard Mandeville in 1714. It was later popularized by John Maynard Keynes as one of the essential concepts in the study of macroeconomic theories. The classical economists regarded saving as a virtue. They believed that saving led to good management of economy and hence they encouraged people to save more. To be … [Read more...] about The Paradox of Thrift
Keynesian Psychological Law of Consumption
The concept of consumption function stems from the basic psychological law of consumption which states that generally, people tend to spend more on consumption when there is an increase in their income level. However, the rise in the spending behavior is not to the same extent as the rise in income because a part of the income is saved as well. The psychological law of … [Read more...] about Keynesian Psychological Law of Consumption