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X-INEFFICIENCY: Cost that is higher than it needs to be because a firm is operating inefficiently. This is most often seen for firms that have a great deal of market control, especially monopoly. The lack of competition allows a business to pad it's expenses, hire unneeded employees (like relatives), goof off instead of working, and all sorts of other things that lessen production and increase cost. The business is not penalized for these actions, because market control allows the company to extract whatever price is needed to cover cost.
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Lesson 10: Gross Domestic Product | Unit 5: Issues
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Page: 24 of 25
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Topic:
What It Doesn't Do
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GDP and related measures are not perfect.- GDP is only an indicator of economic activity. Because it requires interpretation and analysis it is subject to misinterpretation and misanalysis.
- GDP is an aggregate measure for the economy. It measures total production, but it does not indicate who receives the production, the distribution of production.
- GDP does not measure the satisfaction of wants and needs. GDP can increase even though welfare does not increase, or even decreases. GDP might even decrease even though welfare is greater.
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KINKED-DEMAND CURVE ANALYSIS An analysis using the kinked-demand curve to explain rigid prices often found with oligopoly. The kinked-demand curve contains two distinct segments--one for higher prices that is more elastic and one for lower prices that is less elastic. Key to this analysis is that the corresponding marginal revenue curve contains three segments--one associated with the more elastic segment, one associated with the less elastic segment, and one associated with the kink. A profit-maximizing firm can then equate marginal cost to a wide range of marginal revenue values along the vertical segment of the marginal revenue curve. This suggests that marginal cost must change significantly before an oligopolistic firm is inclined to change price.
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Much of the $15 million used by the United States to finance the Louisiana Purchase from France was borrowed from European banks.
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"You miss 100% of the shots you never take. " -- Wayne Gretzky, hockey player
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PSBR
Public Sector Borrowing Requirement
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