Economic power refers to the ability of countries, businesses or individuals to improve living standards. It increases their ability to make decisions on their own that benefit them. Scholars of

international relations International relations (IR), sometimes referred to as international studies and international affairs, is the scientific study of interactions between sovereign states. In a broader sense, it concerns all activities between states—such as ...

also refer to the economic power of a country as a factor influencing its

power in international relations In international relations, power is defined in several different ways. Material definitions of state power emphasize economic and military power. Other definitions of power emphasize the ability to structure and constitute the nature of social ...

Definition

Economists An economist is a professional and practitioner in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this field there are ...

use several concepts featuring the word power: *

Market power In economics, market power refers to the ability of a 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 powe ...

is the ability of a firm to profitably raise the

market price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the ...

of a good or service over marginal cost. **

Monopoly power A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a spec ...

is a strong form of market power—the ability to set prices or wages unilaterally. This is the opposite of the situation in a perfectly competitive market in which supply and demand set prices. *

Purchasing power Purchasing power is the amount of goods and services that can be purchased with a unit of currency. For example, if one had taken one unit of currency to a store in the 1950s, it would have been possible to buy a greater number of items than would ...

, i.e. the ability of any amount of

money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...

to buy goods and services. Those with more

asset In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...

s, or more correctly

net worth Net worth is the value of all the non-financial and financial assets owned by an individual or institution minus the value of all its outstanding liabilities. Since financial assets minus outstanding liabilities equal net financial assets, net ...

, have more power of this sort. The greater the

liquidity Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include: * Market liquidity, the ease with which an asset can be sold * Accounting liquidity, the ability to meet cash obligations when due * Liq ...

of one's assets, the greater one's purchasing power is.

Purchasing power parity Purchasing power parity (PPP) is the measurement of prices in different countries that uses the prices of specific goods to compare the absolute purchasing power of the countries' currency, currencies. PPP is effectively the ratio of the price of ...

is a way of adjusting exchange rate valuations to reflect the actual goods or services that can be purchased for a given amount of currency. *

Corporate power In social science and economics, corporate capitalism is a capitalist marketplace characterized by the dominance of hierarchical and bureaucratic corporations. Overview A large proportion of the economy of the United States and its labour marke ...

, the landmark of

corporate capitalism In social science and economics, corporate capitalism is a capitalist marketplace characterized by the dominance of hierarchical and bureaucratic corporations. Overview A large proportion of the economy of the United States and its labour mark ...

in which with corporations and large business interest groups have power and influence over government policy, including the policies of regulatory agencies and influencing political campaigns. *

Bargaining power Bargaining power is the relative ability of parties in an argumentative situation (such as bargaining, contract writing, or making an agreement) to exert influence over each other. If both parties are on an equal footing in a debate, then they w ...

, i.e. the ability of players in a bargaining game to influence the outcome which is the players sharing rule for something (a prize, a cake or access to resources).Muthoo, Abhinay (1999). ''Bargaining Theory with Applications''. Cambridge University Press.

Information Information is an abstract concept that refers to that which has the power to inform. At the most fundamental level information pertains to the interpretation of that which may be sensed. Any natural process that is not completely random ...

is a contributor to bargaining power. In the case of two agents entering into a contract, if one agent knows that their deal will turn out significantly better, or worse, than the other suspects, then they are exercising a form of informational economic power (see

information asymmetry In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. Information asymmetry creates an imbalance of power in transactions, which ca ...

). * Managerial power, i.e. the ability of managers to threaten their employees with firing or other penalties for not following orders or for not giving in satisfying reports. This exists if there is a cost of job loss, especially due to the existence of

unemployment Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is people above a specified age (usually 15) not being in paid employment or self-employment but currently available for Work (human activity), w ...

and workers' lack of sufficient assets to survive without working for pay. * Worker power, i.e. the ability of workers to threaten their managers with resignation for not providing satisfying working conditions. This exists if there is a cost of hiring, especially due to the existence of low

, recruiting costs, or training costs. * Class power in Marxian

political economy Political economy is the study of how Macroeconomics, economic systems (e.g. Marketplace, markets and Economy, national economies) and Politics, political systems (e.g. law, Institution, institutions, government) are linked. Widely studied ph ...

refers to a situation under

capitalism Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, pric ...

where a minority (the capitalists) in society controls the

means of production The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...

and therefore is able to

exploit Exploit means to take advantage of something (a person, situation, etc.) for one's own end, especially unethically or unjustifiably. Exploit can mean: *Exploitation of natural resources *Exploit (computer security) * Video game exploit *Exploitat ...

the majority (the

workers The workforce or labour force is a concept referring to the pool of human beings either in employment or in unemployment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic reg ...

References

{{DEFAULTSORT:Economic Power Philosophy of economics

Definition

Further reading

References