economics Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and intera ...

finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...

and other fields, the term sweet spot refers to the setting of a policy that results in the optimum balance of costs and benefits. For instance, the

bank rate Bank rate, also known as discount rate in American English, is the rate of interest which a central bank charges on its loans and advances to a commercial bank. The bank rate is known by a number of different terms depending on the country, and ...

can be raised to keep

inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...

in check, but doing so may lower economic output by reducing

investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...

through increased

cost of capital In economics and accounting, the cost of capital is the cost of a company's funds (both debt and equity), or from an investor's point of view is "the required rate of return on a portfolio company's existing securities". It is used to evaluate new ...

. The sweet spot for the bank rate is where its effects on investment are low while the inflation rate remains steady. In a more general sense, the term can be applied to any optimization issue. For instance, the sweet spot for pricing a product in the market is a balance between its affordability and its profit margin. Setting a product's price too high may lower sales at a high margin, while setting it too low may produce many low-margin sales. The sweet spot is the price where the total profit is maximized.

References

* {{cite web , url=https://www.investopedia.com/terms/s/sweetspot.asp , title=Sweet Spot , website=Investopia Decision analysis