An externality is a cost or benefit that one person creates but affects someone else financially. There are two types of externalities: negative and positive. A negative externality happens when one person imposes a cost on another without compensation. In contrast, a positive externality occurs when one person gains an indirect benefit from the actions
Investors should be aware of certain phrases that signal serious warning signs. Sadly, companies often hide these phrases in documents submitted to the Securities and Exchange Commission and in legal language to downplay their significance. However, by identifying a few important phrases, everyday readers can stay informed and avoid making poor investment choices. One such
Production externality is an unintended effect from an industrial activity, like a paper mill releasing waste into a river. These externalities often happen without anyone asking for them and can affect the economy, society, or the environment. Production externalities refer to the gap between the actual cost of making a product and the true cost
A Pigovian tax is a tax applied to market activities that cause negative effects on people who are not part of the transaction. A typical example of a Pigovian tax is a carbon tax, which aims to reduce pollution from gasoline use. Another example is a tobacco tax, designed to help cover the costs that
The Pigou effect was introduced by Arthur Cecil Pigou in 1943 in his article “The Classical Stationary State,” published in the Economic Journal. In this work, Pigou suggested a connection between “real balances” and consumption. You can read more about History of Pigou Effect below. In classical economics, Pigou liked the concept of “natural rates,”
The Pigou effect describes how consumption, wealth, employment, and production are connected during deflation. It suggests that when prices fall, wealth rises, leading to more consumption and, in turn, more jobs and higher production. Before deflation happens, a liquidity trap can occur. This is when there is no interest in investing in bonds, and people
There are maybe reasons for deflation. So, famous economist Milton Friedman claimed that if the central bank aims for a deflation rate equal to the real interest rate on government bonds, the nominal interest rate should be zero. This would mean that prices would gradually decrease at the real interest rate. His ideas led to
The price index options listed above can help determine inflation rates between specific months or years. Although many inflation calculators are available on different financial sites, it’s important to understand the methods behind them to ensure accurate calculations. Here is How to calculate Inflation. Mathematically, If you want to see how the value of $10,000
Deflation means that prices for goods and services go down. It usually happens when there is less money and credit available in the economy. When deflation occurs, the value of money increases over time. You can learn more about Deflation below. Learn more about Deflation Deflation leads to a drop in the nominal costs of
Inflation is the slow decrease in how much you can buy with your money, shown by a general increase in prices for things and services over time. The inflation rate measures how much the average price of a group of chosen goods and services goes up in a year. When inflation is high, prices rise