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This definition comes from Willett's "Economic Theory of Risk and Insurance" (1901). [13] This links "risk" to "uncertainty", which is a broader term than chance or probability. "Measurable uncertainty". This definition comes from Knight's "Risk, Uncertainty and Profit" (1921). [14] It allows "risk" to be used equally for positive and negative ...
Positive economics as a science concerns the investigation of economic behavior. [4] It deals with empirical facts as well as cause-and-effect relationships. It emphasizes that economic theories must be consistent with existing observations and produce precise, verifiable predictions about the phenomena under investigation.
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 ...
The framing effect is a cognitive bias in which people decide between options based on whether the options are presented with positive or negative connotations. [1] Individuals have a tendency to make risk-avoidant choices when options are positively framed, while selecting more loss-avoidant options when presented with a negative frame.
Welfare economics is a branch of economics that uses microeconomic techniques to evaluate economic well-being, especially relative to competitive general equilibrium, with a focus on economic efficiency and income distribution. [13] In general usage, including by economists outside the above context, welfare refers to a form of transfer payment ...
On the other hand, some investments in physical capital can reduce risk and the value of the risk reduction can be estimated with financial calculation methods, just as market risk in financial markets is estimated. For example energy efficiency investments, in addition to reducing fuel costs, reduce exposure fuel price risk. As less fuel is ...
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In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs associated with that risk, should things go wrong. For example, when a corporation is insured, it may take on higher risk knowing that its insurance will pay the