What are the Laws of Supply and Demand? The laws of supply and demand are microeconomic concepts that state that in efficient markets, the quantity supplied of a good and quantity demanded of that good are equal to each other. The price of that good is also determined by the point at which supply and…
What is Capitalism? Capitalism is an economic system that allows for and encourages the private ownership of businesses that operate to generate profit. Also known as the market system, capitalism is characterized by private land ownership rights, competitive markets, the stable rule of law, freely operating capital markets, low corruption, and a price discovery process….
What is a Horizontal Market? A Horizontal Market is a market that is present in a wide range of industries. A business operating in a horizontal market will have consumers and purchasers across different sectors of the economy. So, a business that sells to multiple industries is in a horizontal market. The Office Supplies market…
What is Supplier Power? In Porter’s Five Forces, supplier power is the degree of control a provider of goods or services can exert on its buyers. Supplier power is linked to the ability of suppliers to increase prices, decrease quality, or limit the number of products they will sell. Usually, the number of suppliers of…
What is Inflation? Inflation is an economic concept that refers to an increase in the price level of goods over a specified period. The rise in the price level signifies that the currency in a given economy loses purchasing power (i.e., less can be bought with the same amount of money). The causes of inflation…
What is Stagflation? Stagflation is an economic event in which the inflation rate is high, economic growth rate slows, and unemployment remains steadily high. Such an unfavorable combination is feared and can be a dilemma for governments since most actions designed to lower inflation may raise unemployment levels, and policies designed to decrease unemployment may…
The Great Depression The Great Depression was a worldwide economic depression that took place from the late 1920s through the 1930s. For decades, debates went on about what caused the economic catastrophe, and economists remain split over a number of different schools of thought. In broad terms, the event was most likely caused by overly…
What is Economic Exposure? Economic exposure, also sometimes called operating exposure, is a measure of the change in the future cash flows of a company as a result of unexpected changes in foreign exchange rates (FX). Economic exposure cannot be easily mitigated because it is caused by the unpredictable volatility of currency exchange rates. Increasing…
What is Deflation? Deflation is a decrease in the general price level of goods and services. Put another way, deflation is negative inflation. When it occurs, the value of currency grows over time. Thus, more goods and services can be purchased for the same amount of money. Deflation is widely regarded as an economic “problem”…
What is Absolute Advantage? In economics, absolute advantage refers to the capacity of any economic agent, either an individual or a group, to produce a larger quantity of a product than its competitors. Introduced by Scottish economist Adam Smith in his 1776 work, “An Inquiry into the Nature and Causes of the Wealth of Nations,” which described…
