Archives: Terms

Definition of Efficient Market Hypothesis The Efficient Market Hypothesis (EMH) is an investment theory that states that it is impossible to “beat the market” because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. That means stock prices always reflect all available information, and […]

Definition of Efficient Scale Efficient Scale is defined as the optimal size of a business or organization that maximizes its efficiency and profitability. That means it is the size at which the average cost of producing a good or service is minimized. Example To illustrate this, let’s look at an […]

Definition of Fiat Money Fiat money is a type of currency that is not backed by a physical commodity such as gold or silver. Instead, it is declared legal tender by a government and is accepted as a medium of exchange. That means it is not backed by any physical […]

Definition of Finance Finance is the study of how individuals and organizations manage their money and other assets over time and in the face of uncertainty. It involves the analysis of financial markets, investments, and other financial instruments. It also includes the study of how money is raised and spent […]

Definition of Externality An externality is an economic side effect of an activity or transaction that affects someone other than the parties involved in the transaction. That means it is an unintended and uncompensated consequence of an economic activity that affects a third party. Example To illustrate this, let’s look […]

Definition of Elasticity Elasticity is a measure of how responsive an economic variable is to a change in another economic variable. That means it measures the degree to which a change in one variable (e.g., price) causes a change in another variable (e.g., quantity demanded). Example To illustrate this, let’s […]

Definition of Equilibrium Price The equilibrium price is the price at which the quantity of a good or service demanded by consumers is equal to the quantity supplied by producers. That means it is the price at which the market is in balance, and there is no tendency for the […]

Definition of Equilibrium Quantity Equilibrium quantity is defined as the quantity of a good or service that is supplied and demanded in a market at a given price. That means it is the point at which the quantity of a good or service that producers are willing to supply is […]

Definition of Equity Equity is defined as the value of an asset or a company after subtracting all liabilities. That means it is the difference between the total assets and total liabilities of a company. It is also known as shareholders’ equity or owners’ equity. Example To illustrate this, let’s […]

Definition of Explicit Costs Explicit costs are defined as costs that require an actual cash outflow. That means they are the costs that are directly visible on a company’s balance sheet. Examples of explicit costs include wages, rent, materials, and other expenses that require an actual payment in cash. Example […]