Economic Terms

Is the supply of loans, savings, and other basic financial services to the poor.

These are the financial institutions that provide and facilitate basic financial services to the poor in developing and emerging economies. There are three varities of MFI: Credit Unions, Commerical Banks, Governmental Organisations.

Is a famous American economist who initiated Monetarism in the 1960s as an alternative to Keynesian economics. His views gained ascendancy during the 1970’s and 80’s and have heavily influenced monetary policy and fiscal policy in many countries

Is the output level at which any economies of scale have been fully exploited and the LRAC curve is at the lowest point.

Below is an example of how a firm can achieve the MES. One important point to note is that the larger the level of output that needs to be produced to reach the MES the less contestable the market is. This is because it is extremely difficult for new entrants to produce at such a large scale at the embryonic stage of their development. Often if the MES is so far along the LRAC curve this means that the market is a natural monopoly.

The lowest price that it is legal to trade at and will only be binding if it is set higher than the market equilibrium price. The price floor creates excess supply in the market and as a result of that, it is usually used in conjunction with other policies if the purpose of the price floor is to protect suppliers.

Below is an example of a minimum price implaced in a market by the government to prevent a good from being sold at an excessively low price. In this instance this good cannot be sold below the minimum price in the market as this is strictly prohibited.

A scheme imposed by Government regulation which prevents prices falling below a certain level. Minimum prices are normally set at a level above current equilibrium price.

Below is an example of a minimum price implaced in a market successfully. In this instance the minimum price creates an artificial excess supply as producers have a greater incentive to produce more at a higher price but consumers wish to consume less and switch to cheaper alternatives. But this only occurs if the minimum price is placed above the prevailing market price as shown below. If it is placed below the current market price then it would have a neglible effect on the market.

Is a sudden major collapse of asset values which is part of the credit cycle or business cycle. Such moments occur because long periods of prosperity and increasing value of investments lead to increasing speculation using borrowed money. This term was named after the economist Robert Minsky.

 

 

The incentives of the agent encourage him to take a course of action which is not optimal for the principal.

An economy where the factors of production are owned publicly and privately. e.g. The UK has a public and private sector.

A school of economic thought influenced by the work of Milton Friedman. The central belief is that the size of the money supply is the principal driver of economic growth and inflation.