Monopolistic competition (1933)

Developed by American economist Edward Chamberlin (1899-1967) and English economist Joan Robinson (1903-1983), monopolistic competition refers to competition between several firms producing an almost identical product in a market. The demand for each good is not perfectly elastic. Monopolistic firms command brand loyalty and therefore are not price-takers. Under this form of competition, total product equals the sum

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Monopoly

A market in which one supplier dominates and sets price and quantity of the good. The assumption in monopoly is that there are no substitutes and the firm is thus a price-maker. The firm may be motivated by profit maximization, and restrictive barriers to entry of the market prevent competition. Output is set at

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Monopoly capitalism

An economy dominated by oligopolistic firms earning supernormal profits. The phrase can also mean a centrally planned economy with state-run monopolies organizing economic activity. Source: P A Baran and P M Sweezy, Monopoly Capital: An Essay on the American Economic and Social Order (New York, 1966) The main thesis The main Marxist–Leninist thesis is

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Moral hazard

Moral hazard refers to the idea that certain types of insurance systems might cause individuals to act in a more dangerous way than normal, causing a difference between the private marginal cost and the marginal social cost of the same action. Source: S Ross, ‘The Economic Theory of Agency: the Principal’s Problem’, American Economic

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Mortimer Adler

Mortimer Adler is an American professor, philosopher, and educational theorist. Born in 1902 in New York City, the son of an immigrant jewelry salesman, Adler dropped out of school at age 14 to become a copy boy for the New York Sun. He hoped to become a journalist, and decided a few years later

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Multiplier (1931)

Multiplier is defined as the relationship between a change in the national income and the primary alteration in expenditure that brought it about. In a simple model, the multiplier effect depends on the marginal propensity to consume. Also see: multiplier-accelerator Source: R F Kahn, ‘The Relationship of Home Investment to Employment’, Economic Journal, vol. XLI (June, 1931),

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Multiplier accelerator

Proposed by English economist Roy Harrod (1900-1978) and American economist Paul Samuelson (1915- ) as an extension of the work of English economists John Maynard Keynes (1883-1946) and Richard Kahn (1905-1989), multiplier-accelerator is a model analyzing economic fluctuations through the effects of the accelerator and multiplier models. An increase in government expenditure may lead to an increase in consumer incomes which (through

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NAIRU (non-accelerating inflation rate of unemployment) (1968)

Proposed by American economist Milton Friedman (1912-1992), NAIRU refers to the long-term rate of unemployment at which inflation neither rises nor falls, as upward and downward pressures on wage and price inflation are in equilibrium. The vertical Phillips curve illustrates this situation. Source: M Friedman, ‘The Role of Monetary Policy’, American Economic Review, vol. LVIII (March, 1968), 1-17

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Nash equilibrium (1950)

Named after mathematician JOHN NASH, and central to game theory, Nash equilibrium refers to a situation in which individuals participating in a game pursue the best possible strategy while possessing the knowledge of the strategies of other players. It works on the premise that the player cannot improve his/her position given the other players’ strategy.

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Nassau William Senior

The first holder of the Drummond Chair at Oxford, Nassau William Senior was a detractor from orthodox Ricardianism and more in the the ‘Oxford-Dublin’ tradition of supply-and-demand economics. Specifically, Senior can be credited with the initiation in Great Britain of the utility-based demand and the cost of production-based supply scheme, thus an important predecessor

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National income (17TH-20TH CENTURY)

National income is the total income, over a specified period of time, of all the inhabitants of an economy after allowing for capital consumption. The term can also be used to describe a monetary flow that shows net additions to wealth. National accounting was first conducted by English economist Sir William Petty (1623-1687), and techniques were

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Nationalization (20TH CENTURY)

The process by which privately-owned industries or companies are taken over by the state. Nationalization is often applied to monopolies such as water and gas utilities or transport services, in which social needs are deemed more important than profitability. Since the 1980s, there has been a trend to de-nationalize (privatize) industries in Europe, particularly in

Natural and warranted rates of growth (1930S-40S)

Formulated by English economist Roy Harrod (1900-1978) and Russian-born economist Evsey Domar (1914-1997), natural and warranted rates of growth is a response to the General Theory of English economist John Maynard Keynes (1883-1946). The natural rate is the maximum long-term rate of growth in the Harrod-Domar growth model where population growth increases the labor force and technical advances enable productivity gains. The warranted rate

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Natural monopoly of economics

The existence of an industry (gas, electricity, water, for example) in which the average costs of production per unit fall as output increases. A single firm operating in the industry (a monopoly) can produce output more efficiently than several competing firms under these circumstances. Also see: monopoly Source: W W Sharkey, The Theory of the

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Negative income tax (1962)

Negative income tax was first used by American economist Milton Friedman (1912- ) to describe a form of income maintenance which aims to bring low-income households living below the subsistence level up to a minimum income level set by the government. Source: M Friedman, Capitalism and Freedom (Chicago, 1962) Generic negative income tax The view that

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Neo-classical growth theory (LATE 19TH CENTURY)

Forming part of the broader neo-classical theory, neo-classical growth theory is an analytical framework in which emphasis is placed on the easy substitution of labor and capital in the production function to generate a steady-state of growth, and where all variables are growing at a constant, proportionate, rate. This steady state eliminates the instability of

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Neo-classical theory (19TH CENTURY)

Influenced by classical economic theory, neo-classical theory developed after World War II in opposition to the Cambridge School. It focuses on micro-economic theory and explores the conditions of static equilibrium. Neo-classical theory is essentially concerned with the problems of an economy enjoying equilibrium at full employment. The neo-classical theory is also concerned with savings-determined

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Neo-Ricardian theory (1960S)

English economist David Ricardo (1772-1823) looked to labor theory in his unsuccessful search for an invariable measure of value. The Italian-born economist Piero Sraffa (1898-1983) attempted to solve the problems raised in Ricardo’s and Marx’s work by viewing prices in terms of wages, quantities of capital, and profits, rather than as labor time. He asserted that real prices (measured in

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New class (20TH CENTURY)

Theory of elites in state socialist (communist) societies of the Yugoslav writer MILOVAN DJILAS (1911-1997). Within state socialist societies a ‘new class’ of party officials – who exercise a command over resources similar to that exercised by capitalists – has arisen to frustrate the egalitarian intentions of the regimes’ founders. Source: Milovan Djilas, The

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New classical macroeconomics (1970S)

Developed by American economists Robert Lucas (1937- ) and THOMAS SARGENT (1943- ), and British economists PATRICK MINFORD (1943- ) and MICHAEL BEENSTOCK (1946- ). New classical macroeconomists argue that the economy will settle at a natural rate of unemployment and attempts to alter this equilibrium state will be counteracted by economic agents. When the Keynesian

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