- Industry: Economy; Printing & publishing
- Number of terms: 15233
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When the price of petrol falls people buy more of it. There are two reasons. * The income effect: cheaper petrol means that real purchasing power rises, so consumers have more to spend on everything, including petrol. * The substitution effect: petrol has become cheaper relative to everything else, so people switch some of their consumption out of goods that are now relatively more expensive and buy more petrol instead.
Industry:Economy
When what is done cannot be undone. Sunk costs are costs that have been incurred and cannot be reversed, for example, spending on advertising or researching a product idea. They can be a barrier to entry. If potential entrants would have to incur similar costs, which would not be recoverable if the entry failed, they may be scared off.
Industry:Economy
One of the two words economists use most, along with demand. These are the twin driving forces of the market economy. Supply is the amount of a good or service available at any particular price. The law of supply is that, other things remaining the same, the quantity supplied will increase as the price increases. The actual amount supplied will be determined, ultimately, by what the market price is, which depends on the amount demanded as well as what suppliers are willing to produce. What suppliers are willing to supply depends on several things:
* the cost of the factors of production;
* technology;
* the price of other goods and services (which, if high enough, might tempt the supplier to switch production to those products); and
* the ability of the supplier accurately to forecast demand and plan production to make the most of the opportunity.
Industry:Economy
A graph of the relationship between the price of a good and the amount supplied at different prices. (See also demand curve. )
Industry:Economy
Increasing economic growth by making markets work more efficiently. In the 1980s, Ronald Reagan and Margaret Thatcher championed supply-side policies as they attacked Keynesian demand management. Pumping up demand without making markets work better would simply lead to higher inflation; economic growth would increase only when markets were able to operate more freely. Thus they pursued policies of deregulation, liberalization and privatization and encouraged free trade. To reduce unemployment, they tried to increase the efficiency of the jobs market by cutting the rate of income tax and attacking legal and other impediments to labor market flexibility. The results of these programs are much debated. In particular, the belief, apparently supported by the Laffer curve, that cutting tax rates would increase tax revenue did not always stand up well to real-world testing. Even so, it is now recognized that supply-side reforms are a crucial element in an effective economic policy.
Industry:Economy
A term much used by environmentalists, meaning economic growth that can continue in the long term without non-renewable resources being used up or pollution becoming intolerable. Mainstream economists use the term, too, to describe a rate of growth that an economy can sustain indefinitely without causing a rise in inflation.
Industry:Economy
The risk that remains after diversification, also known as market risk or undiversifiable risk. It is systematic risk that determines the return earned on a well-diversified portfolio of assets.
Industry:Economy
The risk of damage being done to the health of the financial system as a whole. A constant concern of bank regulators is that the collapse of a single bank could bring down the entire financial system. This is why regulators often organize a rescue when a bank gets into financial difficulties. However, the expectation of such a rescue may create a moral hazard, encouraging banks to behave in ways that increase systemic risk. Another concern of regulators is that the risk management methods used by banks are so similar that they may increase systemic risk by creating a tendency for crowd behavior. In particular, problems in one market may cause banks in general to liquidate positions in other markets, causing a vicious cycle of liquidity being withdrawn from the financial system as everybody rushes for the emergency exit at once. (See capital asset pricing model. )
Industry:Economy
Assets you can touch: buildings, machinery, gold, works of art, and so on. Contrast with intangible assets.
Industry:Economy
Often used to describe a tax on goods produced abroad imposed by the government of the country to which they are exported. Many countries have reduced such tariffs as part of the process of freeing up world trade.
Industry:Economy
