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All Economics Content
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Balance of Trade
Balance of TradeWhat is Balance of Trade? The Balance of Trade is the value of a country’s exports (“outflows”) minus the value of its imports (“inflows”). Often used interchangeably with the term “trade balance”, th...
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Bank Run
Bank RunWhat is a Bank Run? A Bank Run occurs when customers start to collectively withdraw their funds from banks under the belief that the bank is at risk of becoming insolvent.
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Barriers to Entry
Barriers to EntryWhat are Barriers to Entry? Barriers to Entry deter new entrants from entering a market and protect the profits of existing incumbents. The existence of barriers to entry within a particular industry...
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Blue Ocean Strategy
Blue Ocean StrategyWhat is Blue Ocean Strategy? The Blue Ocean Strategy is oriented around creating a market and generating consumer demand for a new product offering to achieve long-term, sustainable growth. The priori...
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Command Economy
Command EconomyWhat is Command Economy? The Command Economy is an economic system in which the central government is in a position to control and dictate the economic decisions and initiatives on behalf of a particu...
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Commodities
CommoditiesWhat are Commodities? Commodities are basic goods used for both consumption and production but also for physical exchanges and trading derivatives contracts.
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Commoditization
CommoditizationWhat is Commoditization? Commoditization is the occurrence wherein a product with economic value, formerly distinguished by its unique attributes or branding, is perceived by consumers as a mere commo...
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Competitive Pricing
Competitive PricingWhat is Competitive Pricing? Competitive Pricing is a method by which companies set the prices of their goods and services relative to the market rate set by competitors. Therefore, competitive pricin...
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Consumer Surplus
Consumer SurplusWhat is Consumer Surplus? A Consumer Surplus is present when the actual prices paid by consumers for goods and services are less than the maximum prices at which they would be willing to pay.
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Cost-Based Pricing
Cost-Based PricingWhat is Cost-Based Pricing? Cost-Based Pricing is a business strategy whereby the selling price of a product is set based on the total production, manufacturing, and distribution costs incurred. The c...
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Deflation
DeflationWhat is Deflation? Deflation occurs when an economy’s aggregate measure of pricing, i.e. the consumer price index (CPI), experiences a sustained, long-term decline. A period of deflation consists of a...
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Diseconomies of Scale
Diseconomies of ScaleWhat are Diseconomies of Scale? Diseconomies of Scale occur if the incremental per unit cost of production rises from an increase in production volume (or output).
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Economic Moat
Economic MoatWhat is Economic Moat? An Economic Moat is the competitive advantage belonging to a particular business that protects its profit margins from competitors in the market and other external threats.
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Economies of Scale
Economies of ScaleWhat are Economies of Scale? Economies of Scale occur when the production costs on a per-unit basis decline as the output increases, resulting in cost savings and higher profit margins.
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Factors of Production
Factors of ProductionWhat are the Factors of Production? The Factors of Production establish the foundation of an economy and contribute to the production of goods and services, including the overall productivity (output)...
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Fisher Equation
Fisher EquationWhat is the Fisher Equation? The Fisher Equation illustrates the relationship between nominal interest rates and real interest rates, where the difference is attributable to inflation.
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Free Enterprise
Free EnterpriseWhat is Free Enterprise? Free Enterprise—or “Free Market Economy”—is an economic system wherein the pricing of goods and services in the market is determined by supply and demand rather than by govern...
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Free Market Economy
Free Market EconomyWhat is Free Market Economy? In a Free Market Economy, the production of goods and services is determined by consumer demand rather than controlled by a central government. Since supply and demand in...
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Freemium
FreemiumWhat is Freemium? The Freemium Model is a pricing strategy where a business offers basic product features at no cost while charging a premium fee to access advanced or additional features. In practice...
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GDP Deflator
GDP DeflatorWhat is GDP Deflator? The GDP Deflator tracks the changes in the prices of all the goods and services produced within a country’s economy in order to measure its true economic state. The GDP deflator,...
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Gold Investment
Gold InvestmentWhat is a Gold Investment? A Gold Investment in a portfolio is perceived by many investors as a hedge against inflation and recessions, hence its reputation as a “safe haven” asset class.
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Headwinds
HeadwindsWhat are Headwinds? Headwinds in business refer to the emergence of unfavorable market developments that can hinder a company’s or industry’s growth. Headwinds can arise from various sources, such as...
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Hyperinflation
HyperinflationWhat is Hyperinflation? Hyperinflation occurs in a country’s economy when the prices of goods and services rise in excess of 50% per month.
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Inflation Risk
Inflation RiskWhat is Inflation Risk? Inflation Risk is a key economic concept that refers to the potential reduction in the purchasing power of money over time attributable to rising prices of goods and services i...
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Interest Rate Risk
Interest Rate RiskWhat is Interest Rate Risk? Interest Rate Risk represents the inherent potential for monetary losses incurred by a lender from fluctuations in the market interest rate.
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Inverted Yield Curve
Inverted Yield CurveHow to Interpret an Inverted Yield Curve On December 3, 2018, parts of the yield curve inverted for the first time in a decade. Specifically, the difference (“yield spread”) between 3-year and 5-year...
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Laissez Faire
Laissez FaireWhat is Laissez Faire? Laissez Faire is an economic policy based on the premise that the government should not intervene in the marketplace. The laissez faire doctrine advocates for minimal meddling b...
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Loss Aversion
Loss AversionWhat is Loss Aversion? Loss Aversion refers to the cognitive bias in behavioral finance where a potential or realized loss is perceived as more psychologically impactful relative to a gain of equivale...
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Market Pricing Maxim (MPM)
Market Pricing Maxim (MPM)What is Market Pricing Maxim (MPM)? The Market Pricing Maxim (MPM) states that market transaction prices fully reflect available information, which is distinct from the Efficient Market Hypothesis (EM...
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Mixed Economy
Mixed EconomyWhat is Mixed Economy? The Mixed Economy is a hybrid economic system that blends capitalism and socialism to establish a cohesive balance between free market principles and government intervention. Th...
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Monopolistic Competition
Monopolistic CompetitionWhat is Monopolistic Competition Monopolistic Competition is defined as an environment wherein the market participants sell differentiated products, yet serve the same end market. In economics, monopo...
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Natural Monopoly
Natural MonopolyWhat is a Natural Monopoly? A Natural Monopoly occurs when a single company can produce and offer to sell a product or service at a lower cost than its competitors can, resulting in practically no com...
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Network Effects
Network EffectsWhat are Network Effects? Network Effects refer to the incremental benefits gained from new users joining the platform, which results in the product becoming more valuable for all users.
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Oligopoly
OligopolyWhat is Oligopoly? Oligopoly is an economic term that describes a market structure wherein only a select few market participants compete with each other. The competitive dynamics within an oligopoly a...
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Open Market Operations (OMO)
Open Market Operations (OMO)What are Open Market Operations? Open Market Operations refer to a central bank selling or purchasing securities in the open market in an effort to influence the money supply.
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Original Equipment Manufacturer (OEM)
Original Equipment Manufacturer (OEM)What is OEM? An Original Equipment Manufacturer (OEM) produces equipment, parts, and components on behalf of another company. The purchaser of an OEM’s product is called a value-added reseller (VAR) b...
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Peter Principle
Peter PrincipleWhat is the Peter Principle? The Peter Principle states that in an organizational hierarchy, employees tend to receive a promotion until reaching a state of incompetence. The origin of the Peter Princ...
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Quantitative Easing (QE)
Quantitative Easing (QE)What is Quantitative Easing (QE)? Quantitative Easing (QE) refers to a form of monetary policy where the central bank attempts to encourage economic growth by purchasing long-term securities to increa...
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Reserve Requirements
Reserve RequirementsWhat are Reserve Requirements? Reserve Requirements are defined as the percentage of a depository institution’s cash that the central bank mandates it has on hand, rather than being lent out or invest...
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Shiller PE (CAPE Ratio)
Shiller PE (CAPE Ratio)What is Shiller PE Ratio? The Shiller PE, or “CAPE Ratio” is a variation of the price to earnings ratio adjusted to remove the effects of cyclicality, i.e. the fluctuations in the earnings...
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Stagflation
StagflationWhat is Stagflation? Stagflation describes periods of rising unemployment rates alongside slowing economic growth, or negative gross domestic product (GDP). In economics, the concept of “stagflation”...
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Sunk Cost Fallacy
Sunk Cost FallacyWhat is Sunk Cost Fallacy? The Sunk Cost Fallacy is a cognitive bias in behavioral finance where investors have a tendency to continue a strategy because of their reluctance to forego the capital, tim...
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Tailwinds
TailwindsWhat are Tailwinds? Tailwinds in business refer to positive market developments that can accelerate the growth rate and profitability of a particular company (or industry). In short, a tailwind is a f...
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Trade Deficit
Trade DeficitWhat is a Trade Deficit? A Trade Deficit describes a country with a negative trade balance, wherein the total value of the country’s net imports exceeds the total value of its exports to other countri...
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Trade Surplus
Trade SurplusWhat is a Trade Surplus? A Trade Surplus means a country’s trade balance is positive, i.e. the value of the country’s net exports is greater than the value of its imports from other countries.
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Traditional Economy
Traditional EconomyWhat is Traditional Economy? The Traditional Economy is an economic system deeply rooted in customs, traditions, and cultural beliefs passed down through generations. The traditional economic system i...
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Treasury Bond (T-Bond)
Treasury Bond (T-Bond)What is a Treasury Bond? A Treasury Bond, or “T-Bond”, is a fixed income security issued and backed by the full faith and credit of the U.S. government.
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Treasury Inflation-Protected Securities (TIPS)
Treasury Inflation-Protected Securities (TIPS)What are Treasury Inflation-Protected Securities (TIPS)? Treasury Inflation-Protected Securities (TIPS) are designed to be indexed to changes in inflation as a form of risk protection from the adverse...
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Treasury STRIPS
Treasury STRIPSWhat are Treasury STRIPS? Treasury STRIPS are zero-coupon bonds sold for less than par and pay no interest because the cash flow component was carved out to be separately traded in the secondary marke...
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Usage-Based Pricing (UBP)
Usage-Based Pricing (UBP)What is Usage-Based Pricing? Usage-Based Pricing (UBP) is a consumption-based pricing model in which customers are charged based on the actual usage of a particular product or service. Usage-based pri...
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Value Trap
Value TrapWhat is Value Trap? The Value Trap refers to the fallacy where an investor perceives a particular stock is undervalued because of that fact that the company has fallen out of favor with the market. Si...
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Value-Based Pricing
Value-Based PricingWhat is Value-Based Pricing? Value-Based Pricing is a strategic approach to setting prices based on the perceived value a product or service provides to customers rather than setting prices on product...