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In theory, a market economy's functions are based on fluctuations in supply and demand for specific goods and services across an entire market. This relationship results in market prices that efficiently distribute goods and services among market participants who are willing and able to pay for them. Regulations by government are theoretically ...
A command economy is a major feature of communist systems and the opposite of a capitalist society (where production and price levels are determined by market forces like supply and demand). In a command economy, the central government planning office determines production, distribution, and pricing. Capitalism encourages entrepreneurs to start ...
Example of Economies of Scale. Let's assume that it costs Company XYZ $1,000,000 to produce 1 million widgets per year (or $1.00 per widget). This $1,000,000 cost includes $500,000 ($0.50 per widget) of administrative, insurance, and marketing expenses, which are generally fixed, as well as $500,000 ($0.50 per widget) of variable costs. Now ...
Derived from the Greek word oikonomos, meaning 'one who manages a household,' economy was not used in the modern sense of the economic system of a country or area until the nineteenth and twentieth centuries. Economy also refers to the way in which resources, especially those in shortage, are managed in a competent and appropriate manner.
Aggregate demand is the total demand for goods and services in an economy. It's an economic term that describes the total amount of purchases. When the economy is in equilibrium, aggregate demand is approximately equal to aggregate supply. In other words, aggregate demand is equal to the gross domestic product (GDP) of that economy.
A bullish economy, with steep growth in market values and low losses due to inflation, denotes strong economic growth, though it may lead to rising inflation. In contrast, a bearish economy is the opposite, with stagnant economic performance and inflation rates soaking up any gains. In either extreme, the Federal Reserve acts to either cool off ...
Emerging markets carry a much higher risk because their stocks can be quite volatile. Anything from inflationary pressures to rising interest rates to signs of a global economic cool-down could send them tumbling. Emerging markets investing carries other unique risks, such as political upheaval, regulatory changes, and currency fluctuations.
Similar to economies of scale, economies of scope provide companies with a means to generate operational efficiencies. However, economies of scope are often obtained by producing small batches of many items (as opposed to producing large batches of just a few items). Because they frequently involve marketing and distribution efficiencies ...
4. An Economy Is an Automatic System. Because the invisible hand drives natural flows of labor and production, an economy can run automatically and self-adjust based on the law of supply. When demand is high and production is low, companies naturally adjust their labor to provide goods at a higher price.
An economic moat is a competitive advantage that is difficult to copy or emulate, thereby creating a barrier to competition from other firms. Common economic moats include patents, brand identity, technology, buying power and operational efficiency.