- Industria: Economy; Printing & publishing
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When a country’s own money is replaced as its citizens’ preferred currency by the US dollar. This can be a deliberate government policy or the result of many private choices by buyers and sellers (for instance, at the first sign of trouble, investors across Latin America generally flee into dollars). When it is government policy, dollarization is, in essence, a beefed up currency board. The appeal of dollarization is that the value of the dollar is more stable than the distrusted local currency, which may well have a history of suddenly falling in value. By eliminating all possible risk of devaluation against the dollar, the cost of local companies’ and the government’s borrowing in international markets is reduced, as the currency risk is removed. A big downside is that the country hands over control of monetary policy to the Federal Reserve, and the right interest rate for the United States may not be appropriate for the dollarized country, if that country and the United States do not constitute an optimal currency area. This is one reason that in some countries the local currency has been displaced by another fairly stable currency, such as, in some central European economies, the Euro (and before that the d-mark).
Industry:Economy
People are better off specializing than trying to be jacks of all trades and ending up masters of none. The logic of dividing the workforce into different crafts and professions is the same as that underpinning the case for free trade: everybody benefits from doing those things in which they have a comparative advantage and using income from doing so to meet their other needs.
Industry:Economy
The part of a company’s profit distributed to shareholders. Unlike interest on debt, the payment of a dividend is not automatic. It is decided by the company’s managers, subject to the approval of the company’s owners (shareholders). However, when a company cuts its dividend, this usually triggers a sharp fall in its share price by more than would be appear to be justified by the reduced dividend. Economists theorize that this is because a dividend cut signals to shareholders that the company is in a bad way, with more bad news to follow.
Industry:Economy
A fall in the rate of inflation. This means a slower increase in prices but not a fall in prices, which is known as deflation.
Industry:Economy
Farming around the world continues to become more productive while generally accounting for a smaller share of employment and national income, although in some poor countries it remains the sector on which the country and its people depend. Farming, forestry and fishing in 1913 accounted for 28% of employment in the United States, 41% in France and 60% in Japan, but only 12% in the UK. Now the proportion of the workforce employed in such activities has dropped below 6% in these and most other industrialized countries. The total value of international trade in agriculture has risen steadily. But the global agriculture market remains severely distorted by trade barriers and government subsidy, such as the European Union's Common agricultural policy.
Industry:Economy
Countries often provide support for their farmers using trade barriers and subsidy because, for example:
* domestic agriculture, even if it is inefficient by world standards, can be an insurance policy in case it becomes difficult (as it does, for example, in wartime) to buy agricultural produce from abroad;
* farmers groups have proved adept at lobbying;
* politicians have sought to slow the depopulation of rural areas;
* agricultural prices can be volatile, as a result of unpredictable weather, among other things; and
* financial support can provide a safety net in unexpectedly severe market conditions. Broadly speaking, governments have tried two methods of subsidizing agriculture. The first, used in the United States during the 1930s and in the UK before it joined the European Union, is to top up farmers' incomes if they fall below a level deemed acceptable. Farmers may be required to set aside some of their land in return for this support. The second is to guarantee a minimum level of farm prices by buying up surplus supply and storing or destroying it if prices would otherwise fall below the guaranteed levels. This was the approach adopted by the EU when it set up its Common Agricultural Policy. To keep down the direct cost of this subsidy the EU used trade barriers, including import levies, to minimize competition to EU farmers from produce available more cheaply on world agriculture markets. Recent American farm-support policy has combined income top-ups and some guaranteed prices. As most governments have become more committed to international trade, such agricultural policies have come under increasing attack, although the free trade rhetoric has often run far ahead of genuine reform. In 2003, rich countries together spent over $300 billion a year supporting their farmers, more than six times what they spent on foreign AID. Finding a way to end agricultural support had become by far the biggest remaining challenge for those trying to negotiate global free trade.
Industry:Economy
Many firms advertise their goods or services, but are they wasting economic resources? Some economists reckon that advertising merely manipulates consumer tastes and creates desires that would not otherwise exist. By increasing product differentiation and encouraging brand loyalty advertising may make consumers less price sensitive, moving the market further from perfect competition towards imperfect competition (see monopolistic competition) and increasing the ability of firms to charge more than marginal cost. Heavy spending on advertising may also create a barrier to entry, as a firm entering the market would have to spend a lot on advertising too. However, some economists argue that advertising is economically valuable because it increases the flow of information in the economy and reduces the asymmetric information between the seller and the consumer. This intensifies competition, as consumers can be made aware quickly when there is a better deal on offer.
Industry:Economy
A British economist (1842–1924), who developed some of the most important concepts in microeconomics. In his best-known work, Principles of Economics, he retained the emphasis on the importance of costs, which was standard in classical economics. But he added to it, helping to create Neo-classical economics, by explaining that the output and price of a product are determined by both supply and demand, and that marginal costs and benefits are crucial. He was the first economist to explain that demand falls as price increases, and that therefore the demand curve slopes downwards from left to right. He was also first with the concept of price elasticity of demand and consumer surplus.
Industry:Economy
The founder of economics as we know it. Born in Kirkcaldy, Fife, Adam Smith (1723–90) was educated at Glasgow and Oxford, and in 1751 became professor of logic at Glasgow University. Eight years later he made his name by publishing the THEORY OF MORAL SENTIMENTS. His 1776 book, An Inquiry into the Nature and Causes of the Wealth of Nations, is the bible of classical economics. He emphasized the role of specialization (the division of labor), technical progress and capital investment as the main engines of economic growth. Above all, he stressed the importance of the invisible hand, the way in which self-interest pursued in free markets leads to the most efficient use of economic resources and makes everybody better off in the process.
Industry:Economy
This is the simplest yardstick of economic performance. If one person, firm or country can produce more of something with the same amount of effort and resources, they have an absolute advantage over other producers. Being the best at something does not mean that doing that thing is the best way to use your scarce economic resources. The question of what to specialize in--and how to maximize the benefits from international trade--is best decided according to comparative advantage. Both absolute and comparative advantage may change significantly over time.
Industry:Economy
