An Edgeworth box (named after Irish philosopher and economist Francis Ysidro Edgeworth,) is a two-dimensional depiction of a simple, closed economy consisting of two individuals and two goods (or resources) that are limited in supply. It is a graphical representation of the exchange problem facing these people and also gives a clear-cut solution to their exchange… Continue reading Edgeworth Box Diagram
Category: Micro Economics
Market signaling
A signaling approach refers to the act of following various market signals as indicators for initiating trading positions. Technical analysis is often used to fuel this approach with trades initiated and completed by signals generated from technical studies on price charts. However, the approach is not limited to technical triggers. Any other form of data can also… Continue reading Market signaling
Kaldor-Hicks Welfare Criterion: Compensation Principle
Nicholas Kaldor and J.R. Hicks tried to evaluate the changes in social welfare resulting from any economic reorganization which harms somebody and benefits the others. Both the economists have sought to remove indeterminacy in the analysis of Pareto optimality. They have put forward a criterion known as the ‘compensation principle’ on the basis of which they… Continue reading Kaldor-Hicks Welfare Criterion: Compensation Principle
Moral Hazard
Definition A moral hazard is a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost. It arises when both parties have incomplete information about each other. Description In a financial market, there is a risk that the… Continue reading Moral Hazard
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