What is Consumption? Consumption is defined as the use of goods and services by a household. It is a component in the calculation of the Gross Domestic Product (GDP). Macroeconomists typically use consumption as a proxy of the overall economy. When valuing a business, a financial analyst would look at the consumption trends in the business’ industry….
What is a Subsidy? A subsidy is an incentive given by the government to individuals or businesses in the form of cash, grants, or tax breaks that improve the supply of certain goods and services. With subsidies, consumers can access cheaper products and commodities. Markets with positive externalities, which are extra benefits to society, tend…
What is Bartering? Bartering is the act of trading one good or service for another without using a medium of exchange such as money. A bartering economy differs from a monetary economy in a variety of ways. The primary difference is that goods or services are exchanged immediately, and the exchange is reciprocal, meaning it’s…
What is Underemployment? Underemployment occurs when a person does not work full time or takes a job that does not reflect their actual training and financial needs. That is, their job doesn’t use all their skills and education, or provides less than full time work. This is not the same as unemployment, which refers to…
What is Price Appreciation (Real Estate Investments)? Price appreciation in real estate refers to the increase in the value of a real estate property over a period of time. One of the goals of investing in real estate is to get a positive return on the investment when the investor decides to sell the property…
What is an Amortizing Loan? An amortizing loan is a type of credit that is repaid via periodic installment payments over the lifetime of a loan. Installments are typically monthly payments, but not always. Each periodic payment includes both a principal portion and an interest portion. Amortization refers to the reduction in loan principal outstanding….
What is Economic Efficiency? Economic efficiency is, in mathematical terms, a function of the ratio of the actual value of an economic variable divided by the potential value of that same economic variable. Economic Efficiency Formula Economic efficiency is basically just a measure of how good things are economically, compared to how good they could…
What is a Free Trade Area? A free trade area (FTA) refers to a specific region wherein a group of countries signs a trade agreement that seals the economic cooperation among them. The FTA’s main goals are to bring down barriers in trading, specifically tariffs and import quotas, and encourage the free trade of goods…
What is an Economic Union? An economic union is one of the different types of trade blocs. It refers to an agreement between countries that allows products, services, and workers to cross borders freely. The union is aimed at eliminating internal trade barriers between the member countries, with the goal of economically benefitting all the…
What is the Balance of Trade (BOT)? The balance of trade (BOT), also known as the trade balance, refers to the difference between the monetary value of a country’s imports and exports over a given time period. A positive trade balance indicates a trade surplus while a negative trade balance indicates a trade deficit. The…
