What are Economies of Scale? Economies of scale refer to the cost advantage a firm experiences as it increases its output. The advantage arises due to the inverse relationship between the per-unit fixed cost and the quantity produced. The greater the quantity of output produced, the lower the per-unit fixed cost. Economies of scale also…
What is a Price Ceiling? A price ceiling is a limit on the price of a good or service imposed by the government to protect consumers by ensuring that prices do not become prohibitively expensive. For the measure to be effective, the price set by the price ceiling must be below the natural equilibrium price….
What is Hyperinflation? In economics, hyperinflation is used to describe situations where the prices of all goods and services rise uncontrollably over a defined time period. In other words, hyperinflation is extremely rapid inflation. Generally, inflation is termed hyperinflation when the rate of inflation grows at more than 50% a month. American economics professor Phillip…
What is Disinflation? Disinflation is used to describe the slowing of price inflation. In other words, it is a decrease in the rate of inflation. The term should not be confused with deflation, which is used to describe a negative inflation rate. Disinflation vs. Deflation The terms disinflation and deflation are commonly mixed up. The…
What is a Common Market? A common market is a formal agreement where a group is formed amongst several countries that adopt a common external tariff. In a common market, countries also allow free trade and free movement of labor and capital among the members of the group. The trade arrangement is aimed at providing…
What are Rational Expectations? Rational expectations is an economic theory that states that individuals make decisions based on the best available information in the market and learn from past trends. Rational expectations suggest that people will be wrong sometimes, but that, on average, they will be correct. Understanding the Concept of Rational Expectations The idea…
What is the Kondratieff Wave? The Kondratieff Wave is a concept that was introduced during the Russian Communist era by a sociologist economist, Nikolai D. Kondratieff. He noticed that agricultural products and copper prices underwent long-term economic cycles that he believed to be a result of technological innovation and periods of evolution. Kondratieff first introduced…
What is a Liquidity Trap? A liquidity trap is a situation where an expansionary monetary policy (an increase in the money supply) is not able to increase interest rates and hence does not result in economic growth (increase in output). In the case of deflation or recession, individuals hold on to the money in their…
What is Shrinkflation? In economics, shrinkflation is the practice of reducing the size or quantity of a product while the price of the product remains the same or slightly increases. In some cases, the term may indicate lowering the quality of a product or its ingredients while the price remains the same. British economist Pippa…
What is Abenomics? Abenomics is the name given by economists and policymakers to the economic and social policies followed by the Japanese government under Prime Minister Shinzo Abe. When Prime Minister Abe assumed office in 2012, the country was still recovering from the 2008/09 recession. In addition, Japan went through long periods of low and…
