The Savvy Wallet

The Law of Diminishing Marginal Returns: What It Means for Your Business If you are a business owner, you might have heard of the law of diminishing marginal returns. This is a concept in economics that describes how the output of a production process changes as you add more of one input, while keeping the other inputs constant. For example, suppose you run a bakery and you want to increase the number of cakes you produce per day. You have a fixed amount of oven space, flour, sugar, eggs, and other ingredients, but you can hire more workers to help you bake. How many workers should you hire to maximize your output and profit? According to the law of diminishing marginal returns, there is an optimal level of workers that will give you the highest output per worker. If you hire fewer workers than this level, you are not using your resources efficiently. If you hire more workers than this level, you will face congestion and coordination problems, and each additional worker will add less a...

The Law of Diminishing Marginal Utility: What It Means for Your Money Have you ever wondered why you feel less satisfied after eating the second slice of pizza than the first one? Or why you are willing to pay more for a rare item than a common one? Or why you stop buying more clothes after your closet is full? These are all examples of the law of diminishing marginal utility, a concept in economics that explains how our satisfaction or happiness from consuming goods or services changes as we consume more or less of them. In this blog post, we will explain what the law of diminishing marginal utility is, how it affects our spending and saving decisions, and how we can use it to improve our financial well-being. What Is the Law of Diminishing Marginal Utility? The law of diminishing marginal utility states that the amount of satisfaction or happiness that we get from consuming an additional unit of a good or service decreases as we consume more of it, holding everything else constant 1 ...

  The history of trade unions is a long and complex one, involving social, economic, and political factors. Here is a brief summary of some key events and developments: Trade unions originated in Great Britain, continental Europe, and the United States during the Industrial Revolution, when workers faced harsh and exploitative conditions in factories and mines 1 . Trade unions were initially illegal and persecuted by employers and governments, who used laws such as restraint-of-trade and conspiracy to suppress their activities 1 . Trade unions gradually gained legal recognition and protection through acts such as the Trade-Union Act of 1871 in Britain 1 and a series of court decisions in the United States 2 . Trade unions adopted different strategies and structures depending on the country, industry, and sector they operated in. Some examples are craft unions, general unions, and industrial unions 1 2 . Trade unions also developed political affiliations and influences, such as the...

Initial Public Offerings (IPOs) Explained An initial public offering (IPO) is the process of offering shares of a private company to the public for the first time. By doing so, the company can raise capital from public investors and gain access to a larger pool of funds for its growth and expansion. IPOs also provide an opportunity for the company’s founders and early investors to realize the full profit from their private investment. How does an IPO work? Before a company can go public, it has to go through several steps: Audit : The company has to conduct an audit of its financial situation and disclose all relevant information to the regulators, such as the Securities and Exchange Commission (SEC) in the US or the Federal Financial Supervisory Authority (BaFin) in Germany. Registration : The company has to file a registration statement with the regulators, which includes details about the company’s business, management, risks, financial statements, and the intended use of the IPO pr...

Poverty and (Economic) Inequality Defined Poverty and inequality are two related but distinct concepts that affect the well-being of people and societies. In this blog post, we will explore what they mean, how they are measured, and why they matter. What is poverty? Poverty is the condition of not having enough resources or income to meet one’s basic needs, such as food, clothing, shelter, health, and education. Poverty can be absolute or relative, depending on how it is defined and measured. Absolute poverty refers to a situation where a person’s income or consumption falls below a certain threshold that is considered necessary for survival. This threshold is often called the poverty line, and it can vary across countries and over time, depending on the cost of living and the minimum standards of living. For example, the World Bank uses an international poverty line of $2.15 a day, which reflects the average value of national poverty lines in some of the poorest countries in the world...

What is the Federal Reserve’s discount rate and why does it matter? The discount rate is the interest rate that banks pay to borrow money from the Federal Reserve’s discount window. The discount window is a source of short-term funding for banks that face liquidity problems or need extra cash to meet reserve requirements. The Federal Reserve sets the discount rate as part of its monetary policy tools to influence the availability and cost of credit in the economy. The discount rate affects the interest rates that banks charge their customers for loans and deposits, as well as the interest rates on other financial instruments such as bonds and mortgages. The discount rate also signals the Federal Reserve’s stance on monetary policy and its outlook on the economy. How does the Federal Reserve determine the discount rate? The discount rate is determined by the Federal Reserve’s board of governors, subject to the review and approval of the Federal Reserve System’s board of directors. The b...

The Economics Behind Time Management and Productivity Time is a scarce and valuable resource. We all have the same 24 hours in a day, but how we use them can make a big difference in our lives. Time management is the art and science of planning and organizing how to spend our time effectively and efficiently. Productivity is the measure of how much we can accomplish in a given amount of time. Both time management and productivity are influenced by economic principles and concepts. In this blog post, we will explore some of them and how they can help us improve our personal and professional lives. Opportunity Cost Opportunity cost is the value of the next best alternative that we give up when we make a choice. For example, if we decide to watch a movie instead of studying, the opportunity cost is the potential benefit we could have gained from studying, such as a higher grade or more knowledge. Opportunity cost helps us evaluate the trade-offs and consequences of our decisions. It also ...

The Economics Behind Delegating Tasks/Responsibility Delegating tasks and responsibility is a common practice in many organizations and situations. But what are the economic reasons and benefits of doing so? In this blog post, we will explore the concept of delegation, the factors that influence it, and the consequences of delegating effectively or poorly. What is delegation? Delegation is the process of transferring a decision right or a task to another person or entity. For example, a manager may delegate some of his or her duties to a subordinate, a parent may delegate some of the household chores to a child, or a consumer may delegate some of the shopping decisions to a personal assistant. Delegation can be seen as a form of specialization and division of labor, which are key principles of economics. By delegating, the delegator can focus on other tasks that he or she is more skilled at, more interested in, or more responsible for. The delegatee, on the other hand, can perform the ...

The Covariance ExplainedCovariance is a statistical concept that measures how two variables are related to each other. It tells us whether the variables tend to move in the same or opposite directions, and how much they vary together. In this blog post, we will explain what covariance is, how to calculate it, and how to interpret it. What is Covariance?Covariance is defined as the expected value of the product of the deviations of two variables from their respective means. Mathematically, it can be written as: $$\mathrm{Cov}(X,Y) = E[(X - E[X])(Y - E[Y])]$$ where $X$ and $Y$ are two random variables, $E[X]$ and $E[Y]$ are their means, and $E$ is the expectation operator. Covariance can also be computed using the following formula: $$\mathrm{Cov}(X,Y) = E[XY] - E[X]E[Y]$$ where $E[XY]$ is the expected value of the product of $X$ and $Y$. Covariance can be positive, negative, or zero. A positive covariance means that the two variables tend to move in the same direction, i.e., when one va...

The US - China Trade War Explained The trade war between the US and China is one of the most significant economic events of the past decade. It has affected the global economy, trade patterns, and consumer prices. But what are the causes and consequences of this conflict? And what are the prospects for a resolution? In this post, we will try to answer these questions and provide some insights for savvy investors. What is the trade war? The trade war is a series of escalating tariffs and other measures imposed by the US and China on each other’s goods and services. A tariff is a tax on imports that makes them more expensive and less competitive in the domestic market. The US and China are the world’s two largest economies and trading partners, so their trade war has a huge impact on the global economy. The trade war started in 2018, when the US accused China of unfair trading practices, such as stealing intellectual property, subsidizing domestic industries, and manipulating its currenc...