Economics

About Agency Cost

About Agency Cost

About Agency Cost Agency costs are the costs of disagreement between shareholders and business managers, who may not agree on which actions are best for the business. Managers, instead, would prefer to expand the business and increase their salaries, which may not necessarily increase share value.....

Read More »

About Contract Theory

About Contract Theory

About Contract Theory Contract theory is an economic theory that entails how parties can develop a legal agreement in a situation that involves asymmetric information. Because of its connections with both agency and incentives, contract theory is often categorized within a field known as Law and .....

Read More »

About Wage Curve

About Wage Curve

About Wage Curve Wage curve is a curve which represents a relationship between the rate of unemployment (plotted on the X-axis) and the wage rate (represented on the Y-axis). According to David Blanchflower and Andrew Oswald (1994, p. 5), the wage curve summarizes the fact that “A worker wh.....

Read More »

Reflexivity in Economics

Reflexivity in Economics

Reflexivity in Economics In Economics reflexivity refers to the self-reinforcing effect of market sentiment, whereby rising prices attract buyers whose actions drive prices higher still until the process becomes unsustainable and the same process operates in reverse leading to a catastrophic coll.....

Read More »

About Goodhart’s Law

About Goodhart’s Law

About Goodhart’s Law Goodhart’s Law is a theory, which was introduced by Professor Charles Goodhart stating that when a measure becomes the target, it can no longer be used as the measure. Restated and generalized in 1997 by University of Cambridge Professor Marilyn Strathern as “Wh.....

Read More »

About Phillips Curve

About Phillips Curve

About Phillips Curve The Phillips curve is an economic concept developed by William Phillips (A.W. Phillips) stating that inflation and unemployment have a stable and inverse relationship. The theory claims that economic growth comes inflation, which in turn should lead to more jobs and less unem.....

Read More »

Lucas Islands Model

Lucas Islands Model

Lucas Islands Model The Lucas-Islands model is an economic model formulated by Robert Lucas, Jr. It is an economic model of the link between money supply and price and output changes in a simplified economy using rational expectations. It delivered a new classical explanation of the Phillips curv.....

Read More »

About Rational Expectations

About Rational Expectations

About Rational Expectations In economics, “rational expectations” are model-consistent expectations, in that agents inside the model are assumed to “know the model” and on average take the model’s predictions as valid. The rational expectations assumption is used esp.....

Read More »

Adaptive Expectations

Adaptive Expectations

Adaptive Expectations Adaptive expectations are an economic theory which gives importance to past events in predicting future outcomes. It is a hypothesized process by which people from their expectations about what will happen in the future based on what has happened in the past. For example, if.....

Read More »

Cobweb Model

Cobweb Model

Cobweb Model Cobweb model or Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed. Producers.....

Read More »

About General Equilibrium Theory

About General Equilibrium Theory

About General Equilibrium Theory General equilibrium theory, or Walrasian general equilibrium, attempts to explain the functioning of the macroeconomy as a whole, rather than as collections of individual market phenomena. This theory introduced by French Economist Leon Walras in 1870s. General eq.....

Read More »

About Econophysics

About Econophysics

About Econophysics Econophysics is the branch of physics where the physics theories are applying for the analysis of economics and finance problems. Some of its application to the study of financial markets has also been termed statistical finance referring to its roots in statistical physics. Th.....

Read More »