What is a Network Effect? The Network Effect is a phenomenon where present users of a product or service benefit in some way when the product or service is adopted by additional users. This effect is created by many users when value is added to their use of the product. The largest and best-known example…
What is Normative Economics? Normative economics is a school of thought which believes that economics as a subject should pass value statements, judgments, and opinions on economic policies, statements, and projects. It evaluates situations and outcomes of economic behavior as morally good or bad. Normative economics, as opposed to positive economics, tells us whether certain…
What is Velocity of Circulation? Velocity of Circulation refers to the average number of times a single unit of money changes hands in an economy during a given period of time. It can also be referred to as the velocity of money or velocity of circulation of money. It is the frequency with which the…
What is the Big Mac Index? The Big Mac Index is a tool devised by economists in the 1980s to examine whether the currencies of various countries offer roughly equal levels of basic affordability. The Big Mac Index is based on the theory of Purchasing Power Parity (PPP). History of the Big Mac Index The…
What is a Sunk Cost? A sunk cost is a cost that has already occurred and cannot be recovered by any means. Sunk costs are independent of any event and should not be considered when making investment or project decisions. Only relevant costs (costs that relate to a specific decision and will change depending on…
What is Fiat Money? Fiat money is a currency that lacks intrinsic value and is established as a legal tender by government regulation. Traditionally, currencies were backed by physical commodities such as silver and gold, but fiat money is based on the creditworthiness of the issuing government. The value of fiat money depends on supply…
What is the Opportunity Cost of a Decision? Opportunity cost is one of the key concepts in the study of economics and is prevalent throughout various decision-making processes. The opportunity cost is the value of the next best alternative foregone. In simplified terms, it is the cost of what else one could have chosen to…
What is the International Monetary Fund (IMF)? The International Monetary Fund (IMF) is an institution of the United Nations that sets standards for the global economy with the aim of strengthening its member countries economically. The organization currently lists 189 member countries that are represented on the IMF Executive Board. The ratio of board members…
