IMPORTANT CONCEPTS IN ECONOMY

IMPORTANT CONCEPTS IN ECONOMY

 

Trickle-Down Effect

The trickle-down effect, in marketing, refers to the phenomenon of fashion trends flowing from the upper classes to the lower classes in a society. Similarly, it may also refer to how new consumer products – when first introduced into the market – are especially costly and only affordable by the wealthy, but as a product matures its price will begin to fall so it may be more widely adopted by the general public. Finally, the trickle-down effect is a phenomenon where an advertisement is rapidly disseminated by word of mouth or by viral marketing.

 

Fiat Money

This type of money is also termed as legal tender as notified by the Central Government and Central Bank. This is unlike the commodity money; it might not have an intrinsic value. Paper currencies and metal coins are examples of fiat money. In modern economies or current phase, it mainly exists as data such as bank balances and records of credit or debit card purchases.

 

Purchasing Power Parity (PPP)

PPP is one of popular macroeconomic analysis metric to compare economic productivity and standards of living between countries is purchasing power parity (PPP). PPP is an economic theory that compares different countries’ currencies through a “basket of goods” approach.

According to this concept, two currencies are in equilibrium—known as the currencies being at par—when a basket of goods is priced the same in both countries, taking into account the exchange rates.

 

Predatory Pricing

The pricing policy of a firm with the express purpose of harming rivals or exploiting the consumer. By price-cutting, firstly the rivals are ousted from the market and later the consumers are exploited as monopolistic suppliers by the firm.

 

A Beveridge Curve, Or UV Curve

It is a graphical representation of the relationship between  unemployment  and the job vacancy rate, the number of unfilled jobs expressed as a proportion of the labour force. It typically has vacancies on the vertical axis and unemployment on the horizontal.

 

Externalities

Those benefits or harms accruing to another person, firm or any other entity which occur because some person, firm or any other entity may be involved in an economic activity. If someone is causing benefits or good externality to another, the latter does not pay the former. If someone is inflicting harm or bad externality to another, the former does not compensate the latter.

 

Double Coincidence Of Wants

A situation where two economic agents have complementary demand for each other’s’ surplus production.

 

Liquidity Trap

A liquidity trap is a situation, described in Keynesian economics, in which, “after the rate of interest has fallen to a certain level, liquidity preference may become virtually absolute in the sense that almost everyone prefers holding cash rather than holding a debt which yields so low a rate of interest.

 

Capital Flight

A destructive process in which investors (both foreigners and domestic

residents) withdraw their financial capital from a country as a result of what are perceived to be non-favourable changes in economic policies, political conditions, or other factors. The consequences of capital flight can include a contraction in real investment spending, a dramatic depreciation in the exchange rate, and a rapid tightening of credit conditions. Developing countries are most vulnerable to capital flight.

 

Evergreening

Evergreening is any of various legal, business and technological strategies by which producers extend their patents over products that are about to expire, in order to retain royalties from them, by either taking out new patents (for example over associated delivery systems, or new pharmaceutical mixtures), or by buying out, or frustrating competitors, for longer periods of time than would normally be permissible under the law.

 

Helicopter Money

Helicopter money is a proposed unconventional monetary policy, sometimes suggested as an alternative to quantitative easing (QE) when the economy is in a liquidity trap (when interest rates near zero and the economy remains in recession).

 

Currency War

Currency war, also known as competitive devaluations, is a condition in international affairs where countries seek to gain a trade advantage over other countries by causing the exchange rate of their currency to fall in relation to other currencies.