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Price mechanism is an economic term that refers to the buyers and sellers who negotiate prices of goods or services depending on demand and supply. A price mechanism or market-based mechanism refers to a wide variety of ways to match up buyers and sellers through price rationing.
Industry:Economy
A measure of the responsiveness of demand to a change in price. If demand changes by more than the price has changed, the good is price-elastic. If demand changes by less than the price, it is price-inelastic. Economists also measure the elasticity of demand to changes in the income of consumers.
Industry:Economy
When a firm charges different customers different prices for the same product. For producers, the perfect world would be one in which they could charge each customer a different price: the price that each customer would be willing to pay. This would maximize producer surplus. This cannot happen, not least because sellers do not know how much any individual would pay. Yet some price discrimination is possible if an overall market can be segmented into somewhat separate markets and the equilibrium price in each of these markets is different, perhaps because of differences in consumer tastes, perhaps because in some segments the firm enjoys some market power. But this will work only if the market segments can be kept apart. If it is possible and profitable to buy the product in a low-price segment and resell it in a high-price segment, then price discrimination will not last for long.
Industry:Economy
In equilibrium, what balances supply and demand. The price charged for something depends on the tastes, income and elasticity of demand of customers. It depends on the amount of competition in the market. Under perfect competition, all firms are price takers. Where there is a monopoly, or firms have some market power, the seller has some control over the price, which will probably be higher than in a perfectly competitive market. By how much more will depend on how much market power there is, and on whether the firm(s) with the market power are committed to profit maximization. In some cases, firms may charge less than the profit-maximizing price for strategic or other reasons (see predatory pricing).
Industry:Economy
Charging low prices now so you can charge much higher prices later. The predator charges so little that it may sustain losses over a period of time, in the hope that its rivals will be driven out of business. Clearly, this strategy makes sense only if the predatory firm is able eventually to establish a monopoly. Some advocates of anti-dumping policies say that cheap imports are examples of predatory pricing. In practice, the evidence gives little support for this view. Indeed, in general, predatory pricing is quite rare. It is certainly much less common in practice than it might appear from the propaganda of firms that are under pricing pressure from more efficient competitors.
Industry:Economy
Keeping some money handy, just in case. One of three motives for holding money identified by Keynes, along with the transactional motive (having the cash to pay for planned purchases) and the speculative motive (you think asset prices are going to fall, so you sell your assets for cash).
Industry:Economy
A poverty trap is "any self-reinforcing mechanism which causes poverty to persist." If it persists from generation to generation, the trap begins to reinforce itself if steps are not taken to break the cycle.
Industry:Economy
The state of being poor, which depends on how you define it. One approach is to use some absolute measure. For instance, the poverty rate refers to the number of households whose income is less than three times what is needed to provide an adequate diet. (Though what constitutes adequate may change over time. ) Another is to measure relative poverty. For instance, the number of people in poverty can be defined as all households with an income of less than, say, half the average household income. Or the (relative) poverty line may be defined as the level of income below which are, say, the poorest 10% of households. In each case, the dividing line between poverty and not-quite poverty is somewhat arbitrary. As countries get richer, the number of people in absolute poverty usually gets smaller. This is not necessarily true of the numbers in relative poverty. The way that relative poverty is defined means that it is always likely to identify a large number of impoverished households. However rich a country becomes, there will always be 10% of households poorer than the rest, even though they may live in mansions and eat caviar (albeit smaller mansions and less caviar than the other 90% of households).
Industry:Economy
Economics that describes the world as it is, rather than trying to change it. The opposite of normative economics, which suggests policies for increasing economic welfare.
Industry:Economy
Things that the Joneses buy. Some things are bought for their intrinsic usefulness, for instance, a hammer or a washing machine. Positional goods are bought because of what they say about the person who buys them. They are a way for a person to establish or signal their status relative to people who do not own them: fast cars, holidays in the most fashionable resorts, clothes from trendy designers. By necessity, the quantity of these goods is somewhat fixed, because to increase supply too much would mean that they were no longer positional. What would owning a Rolls-Royce say about you if everybody owned one? Fears that the rise of positional goods would limit growth, since by definition they had to be in scarce supply, have so far proved misplaced. Entrepreneurs have come up with ever more ingenious ways for people to buy status, thus helping developed economies to keep growing.
Industry:Economy
