Archives: Terms

Definition of Producer A producer is an individual, group, or organization involved in the creation of goods and services intended for exchange. In an economic context, producers are key players within the market ecosystem, providing the supply to meet consumer demand. They can range from farmers who cultivate crops, manufacturers […]

Definition of the Principle of Effective Demand The principle of effective demand is a central concept in Keynesian economics, formulated by John Maynard Keynes in his seminal work, “The General Theory of Employment, Interest, and Money.” It posits that in the short run, the economic output and employment levels in […]

Definition of the Principal-Agent Problem The principal-agent problem arises in scenarios where one party (the agent) is able to make decisions and/or take actions on behalf of, or that impact, another party (the principal). This issue often occurs within the context of a contractual relationship where there is a partial […]

Definition of Prime Rate The prime rate is the interest rate that commercial banks charge their most creditworthy corporate customers. It serves as a benchmark for many other loans, meaning that when the prime rate rises or falls, the interest rates on various types of loans, like mortgages, small business […]

Definition of Pricing Pricing is the process of determining what a company will receive in exchange for its products or services. It is a critical element of the marketing mix and can significantly impact a company’s profitability, market share, and overall success. Effective pricing strategies consider various factors, including production […]

Definition of Price War A price war is a competitive strategy where companies engage in a series of price cuts to undercut their competitors, with the aim of increasing their market share and sales volume. This aggressive pricing tactic can lead to significantly lower prices for consumers, but it can […]

Definition of Price-Specie Flow Mechanism The price-specie flow mechanism is an economic theory developed by the Scottish philosopher David Hume in the 18th century. This mechanism explains how the gold standard system automatically adjusts the balance of payments among countries, thereby correcting trade imbalances. According to this theory, a country […]

Definition of Price Point A price point is the standard price or price range of a product as established by the market or by the product’s producer. It represents a balance between sales volume and profit margins, considering consumer demand and competitive pricing. Price points are critical for businesses as […]

Definition of the Prebisch–Singer Hypothesis The Prebisch–Singer hypothesis is a theory in economics that suggests that the terms of trade between primary products and manufactured goods tend to deteriorate over time. This theory, posited by Raúl Prebisch and Hans Singer in the late 1940s and early 1950s, respectively, argues that […]

Definition of PPP Puzzle The Purchasing Power Parity (PPP) puzzle refers to the observation that exchange rates do not always adjust to equalize the price levels between two countries. This is in contradiction to the theory of Purchasing Power Parity, which states that in the absence of transportation costs and […]