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Real Rigidity
In macroeconomics, rigidities are real prices and wages that fail to adjust to the level indicated by equilibrium or if something holds one price or wage fixed to a relative value of another. Real rigidities can be distinguished from nominal rigidities, rigidities that do not adjust because prices can be sticky and fail to change value even as the underlying factors that determine prices fluctuate. Real rigidities, along with nominal, are a key part of new Keynesian economics. Economic models with real rigidities lead to nominal shocks (like changes in monetary policy) having a large impact on the economy. In the product market Real price rigidity can result from several factors. First, firms with market power can raise their mark-ups to offset declines in marginal cost and maintain a high price. Search costs can contribute to real rigidities through "thick market externalities". A thick market has many buyers and sellers, so search costs are lower. Thick markets can be expec ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Macroeconomics
Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output (economics), output/Gross domestic product, GDP (gross domestic product) and national income, unemployment (including Unemployment#Measurement, unemployment rates), price index, price indices and inflation, Consumption (economics), consumption, saving, investment (macroeconomics), investment, Energy economics, energy, international trade, and international finance. Macroeconomics and microeconomics are the two most general fields in economics. The focus of macroeconomics is often on a country (or larger entities like the whole world) and how its markets interact to produce large-scale phenomena that economists refer to as aggregate variables. In microeconomics the focus of analysis is often a single market, such as whether changes in supply or ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Nominal Rigidity
In economics, nominal rigidity, also known as price-stickiness or wage-stickiness, is a situation in which a nominal price is resistant to change. Complete nominal rigidity occurs when a price is fixed in nominal terms for a relevant period of time. For example, the price of a particular good might be fixed at $10 per unit for a year. Partial nominal rigidity occurs when a price may vary in nominal terms, but not as much as it would if perfectly flexible. For example, in a regulated market there might be limits to how much a price can change in a given year. If one looks at the whole economy, some prices might be very flexible and others rigid. This will lead to the aggregate price level (which we can think of as an average of the individual prices) becoming "sluggish" or "sticky" in the sense that it does not respond to macroeconomic shocks as much as it would if all prices were flexible. The same idea can apply to nominal wages. The presence of nominal rigidity is an importa ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
New Keynesian Economics
New Keynesian economics is a school of macroeconomics that strives to provide microfoundations, microeconomic foundations for Keynesian economics. It developed partly as a response to criticisms of Keynesian macroeconomics by adherents of new classical macroeconomics. Two main assumptions define the New Keynesian approach to macroeconomics. Like the New Classical approach, New Keynesian macroeconomic analysis usually assumes that households and firms have rational expectations. However, the two schools differ in that New Keynesian analysis usually assumes a variety of market failures. In particular, New Keynesians assume that there is imperfect competition in price and wage setting to help explain why prices and wages can become "Sticky (economics), sticky", which means they do not adjust instantaneously to changes in economic conditions. Wage and price stickiness, and the other present descriptions of market failures in New Keynesian Model (macroeconomics), models, imply that ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Market Power
In economics, market power refers to the ability of a theory of the firm, firm to influence the price at which it sells a product or service by manipulating either the supply or demand of the product or service to increase economic profit. In other words, market power occurs if a firm does not face a perfectly elastic demand curve and can set its price (P) above marginal cost (MC) without losing revenue. This indicates that the magnitude of market power is associated with the gap between P and MC at a firm's profit maximising level of output. The size of the gap, which encapsulates the firm's level of market dominance, is determined by the residual demand curve's form. A steeper reverse demand indicates higher earnings and more dominance in the market. Such propensities contradict Perfect competition, perfectly competitive markets, where market participants have no market power, P = MC and firms earn zero economic profit. Market participants in perfectly competitive markets are cons ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Markup (business)
Markup (or price spread) is the difference between the selling price of a good or service and its marginal cost. In economics, markups are the most direct way to measure market power: the extent to which a firm can influence the price at which it sells a product or service. Markup is often expressed as a percentage over the cost. A markup is added into the total cost incurred by the producer of a good or service in order to cover the costs of doing business and create a profit. The total cost reflects the total amount of both fixed and variable expenses to produce and distribute a product. Markup can be expressed as the fixed amount or as a percentage of the total cost or selling price. Retail markup is commonly calculated as the difference between wholesale price and retail price, as a percentage of wholesale. Other methods are also used. Markdowns refer to the ability of a firm to hold the price it pays for an input below the input's marginal product. Price determina ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Marginal Cost
In economics, the marginal cost is the change in the total cost that arises when the quantity produced is increased, i.e. the cost of producing additional quantity. In some contexts, it refers to an increment of one unit of output, and in others it refers to the rate of change of total cost as output is increased by an infinitesimal amount. As Figure 1 shows, the marginal cost is measured in dollars per unit, whereas total cost is in dollars, and the marginal cost is the slope of the total cost, the rate at which it increases with output. Marginal cost is different from average cost, which is the total cost divided by the number of units produced. At each level of production and time period being considered, marginal cost includes all costs that vary with the level of production, whereas costs that do not vary with production are fixed. For example, the marginal cost of producing an automobile will include the costs of labor and parts needed for the additional automobile but not t ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Search Cost
Search costs are a facet of transaction costs or switching costs and include all the costs associated with the searching activity conducted by a prospective seller and buyer in a market. Rational consumers will continue to search for a better product or service until the marginal cost of searching exceeds the marginal benefit. Search theory is a branch of microeconomics that studies decisions of this type. The costs of searching are divided into external and internal costs. External costs include the monetary costs of acquiring the information, and the opportunity cost of the time taken up in searching. External costs are not under the consumer's control, and all he or she can do is choose whether or not to incur them. Internal costs include the mental effort given over to undertaking the search, sorting the incoming information, and integrating it with what the consumer already knows. Internal costs are determined by the consumer's ability to undertake the search, and this in turn ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Supply Chain
A supply chain is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers, while supply chain management deals with the flow of goods in distribution channels within the supply chain in the most efficient manner. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable. Supply chains link value chains. Suppliers in a supply chain are often ranked by "tier", with first-tier suppliers supplying directly to the client, second-tier suppliers supplying to the first tier, and so on. The phrase "supply chain" may have been first published in a 1905 article in ''The Independent (New York City), The Independent'' which briefly mentions the difficulty of "keeping a supply chain with India unbroken" during the British expedition to Tibet. Overview A typical supply chain can be divided into two stages namely, produ ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Asymmetric Information
In contract theory, mechanism design, and economics, an information asymmetry is a situation where one party has more or better information than the other. Information asymmetry creates an imbalance of power in transactions, which can sometimes cause the transactions to be inefficient, causing market failure in the worst case. Examples of this problem are adverse selection, moral hazard,Dembe, Allard E. and Boden, Leslie I. (2000). "Moral Hazard: A Question of Morality?" New Solutions 2000 10(3). 257–79 and monopolies of knowledge. A common way to visualise information asymmetry is with a scale, with one side being the seller and the other the buyer. When the seller has more or better information, the transaction will more likely occur in the seller's favour ("the balance of power has shifted to the seller"). An example of this could be when a used car is sold, the seller is likely to have a much better understanding of the car's condition and hence its market value than the bu ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Implicit Contract Theory
In economics, implicit contracts refer to voluntary and self-enforcing long term agreements made between two parties regarding the future exchange of goods or services. Implicit contracts theory was first developed to explain why there are quantity adjustments ( layoffs) instead of price adjustments (falling wages) in the labor market during recessions. The origins of implicit-contract theory lie in the belief that observed movements in wages and employment cannot be adequately explained by a competitive spot labour-market in which wages are always equal to the marginal product of labour and the labour market is always in equilibrium. In the context of the labor market, an implicit contract is an employment agreement between an employer and an employee that specifies how much labor is supplied by the worker and how much wage is paid by the employer under different circumstances in the future. An implicit contract can be an explicitly written document or a tacit agreement (some ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Efficiency Wage Theory
In labor economics, an efficiency wage is a wage paid in excess of the market-clearing wage to increase the labor productivity of workers.Mankiw, Gregory N. & Taylor, Mark P. (2008), ''Macroeconomics'' (European edition), pp. 181–182 Specifically, it points to the incentive for managers to pay their employees more than the market-clearing wage to increase their productivity or to reduce the costs associated with employee turnover. Theories of efficiency wages explain the existence of involuntary unemployment in economies outside of recessions, providing for a natural rate of unemployment above zero. Because workers are paid more than the equilibrium wage, workers may experience periods of unemployment in which workers compete for a limited supply of well-paying jobs. Overview of theory There are several reasons why managers may pay efficiency wages: * ''Avoiding shirking'': If it is difficult to measure the quantity or quality of a worker's effortand systems of piece rates or ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
