- Industry: Economy; Printing & publishing
- Number of terms: 15233
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The study of the individual pieces that together make an economy. Contrast with macroeconomics, the study of economy-wide phenomena such as growth, inflation and unemployment. Microeconomics considers issues such as how households reach decisions about consumption and saving, how firms set a price for their output, whether privatization improves efficiency, whether a particular market has enough competition in it and how the market for labor works.
Industry:Economy
When two businesses join together, either by merging or by one company taking over the other. There are three sorts of mergers between firms: horizontal integration, in which two similar firms tie the knot; vertical integration, in which two firms at different stages in the supply chain get together; and diversification, when two companies with nothing in common jump into bed. These can be a voluntary marriage of equals; a voluntary takeover of one firm by another; or a hostile takeover, in which the management of the target firm resists the advances of the buyer but is eventually forced to accept a deal by its current owners. For reasons that are not at all clear, merger activity generally happens in waves. One possible explanation is that when share prices are low, many firms have a market capitalization that is low relative to the value of their assets. This makes them attractive to buyers (see tobin). In theory, the different sorts of mergers have different sorts of potential benefits. However, the damning lesson of merger waves stretching back over the past 50 years is that, with one big ex ception – the spate of leveraged buy-outs in the United States during the 1980s – they have often failed to deliver benefits that justify the costs.
Industry:Economy
The conventional economic wisdom of the 17th century that made a partial come-back in recent years. Mercantilists feared that money would become too scarce to sustain high levels of output and employment; their favored solution was cheap money (low interest rates). In a forerunner to the 20th-century debate between Keynesians and monetarists, they were opposed by advocates of classical economics, who argued that cheap and plentiful money could result in inflation. The original mercantilists, such as John Law, a Scots financier (and convicted murderer), believed that a country’s economic prosperity and political power came from its stocks of precious metals. To maximize these stocks they argued against free trade, favoring protectionist policies designed to minimize imports and maximize exports, creating a trade surplus that could be used to acquire more precious metal. This was contested for the classicists by Adam Smith and David Hume, who argued that a country’s wealth came not from its stock of precious metals but rather from its stocks of productive resources (land, labor, capital, and so on) and how efficiently they are used. Free trade increased efficiency by allowing countries to specialize in things in which they have a comparative advantage.
Industry:Economy
How much it costs to change prices. Just as a restaurant has to print a new menu when it changes the price of its food, so many other firms face a substantial outlay each time they cut or raise what they charge. Such menu costs mean that firms may be reluctant to change their prices every time there is a shift in the balance of supply and demand, so there will be sticky prices and the market for their output will be in disequilibrium. The Internet may sharply reduce menu costs as it allows prices to be changed at the click of a mouse, which may improve efficiency by keeping markets more often in equilibrium.
Industry:Economy
Somewhere between short-termism, which is bad, and the long run, lies the hallowed ground of the medium term – far enough away to discourage myopic behavior by decision makers but close enough to be meaningful. But not many governments say exactly how long they think the medium term is.
Industry:Economy
The tendency for subsequent observations of a random variable to be closer to its mean than the current observation. For example, if the current number is 7, the average is 5, and there is mean reversion, then the next observation is likelier to be 6 than 8.
Industry:Economy
Probably the most successful program of international aid and nation building in history. It was named after General George Marshall, an American secretary of state, who at the end of the second world war proposed giving aid to Western Europe to rebuild its war-torn economies. North America gave around 1% of its GDP in total between 1948 and 1952; most of it came from the United States and the rest from Canada. The Americans left it to the Europeans to work out the details on allocating aid, which may be why, according to most economic analyses, it achieved more success than latter day aid programs in which most of the decisions on how the money is spent are made by the donors. The main institution through which aid was administered was the Organization for European Economic Co-operation (OEEC), which in 1961 became the OECD. Nowadays, whenever there is a proposal for the international community to rebuild an economy damaged by war, such as Iraq's in 2003, you are sure to hear the phrase “new Marshall Plan”.
Industry:Economy
When one buyer or seller in a market has the ability to exert significant influence over the quantity of goods and services traded or the price at which they are sold. Market power does not exist when there is perfect competition, but it does when there is a monopoly, monopsony or oligopoly.
Industry:Economy
Shorthand for the pressures from buyers and sellers in a market, rather than those coming from a government planner or from regulation.
Industry:Economy
When a market left to itself does not allocate resources efficiently. Interventionist politicians usually allege market failure to justify their interventions. Economists have identified four main sorts or causes of market failure. * The abuse of market power, which can occur whenever a single buyer or seller can exert significant influence over prices or output (see monopoly and monopsony). * externalities – when the market does not take into account the impact of an economic activity on outsiders. For example, the market may ignore the costs imposed on outsiders by a firm polluting the environment. * public goods, such as national defense. How much defense would be provided if it were left to the market?
* Where there is incomplete or asymmetric information or uncertainty. Abuse of market power is best tackled through antitrust policy. Externalities can be reduced through regulation, a tax or subsidy, or by using property rights to force the market to take into account the welfare of all who are affected by an economic activity. The supply of public goods can be ensured by compelling everybody to pay for them through the tax system.
Industry:Economy
