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In 1993, the United States, Mexico and Canada agreed to lower the barriers to trade among the three economies. The formation of this regional trade area was opposed by many politicians in all three countries. In the United States and Canada, in particular, there were fears that NAFTA would result in domestic job losses to cheaper locations in Mexico. In the early years of the agreement, however, most studies found that the economic gains far outweighed any costs.
Industry:Economy
Economics that tries to change the world, by suggesting policies for increasing economic welfare. The opposite of positive economics, which is content to try to describe the world as it is, rather than prescribe ways to make it better.
Industry:Economy
When average income increases, the demand for normal goods increases, too. The opposite of inferior goods.
Industry:Economy
Trying to win business from rivals other than by charging a lower price. Methods include advertising, slightly differentiating your product, improving its quality, or offering free gifts or discounts on subsequent purchases. Non-price competition is particularly common when there is an oligopoly, perhaps because it can give an impression of fierce rivalry while the firms are actually colluding to keep prices high.
Industry:Economy
Although such groups have existed for generations (in the early 1800s, the British and Foreign Anti-Slavery Society played a powerful part in abolishing slavery laws), recent social and economic shifts have given these typically voluntary, non-profit, “issue-driven” organizations new life. The collapse of communism, the spread of democracy, technological change and economic integration (globalization, in short) have each helped NGOs grow. Globalization itself has exacerbated a host of worries about the environment, labor rights, human rights, consumer rights, and so on. Democratization and technological progress have revolutionized the way in which citizens can unite to express their disquiet. Governments have been at the sharp end of pressure from NGOs. Arguably, however, it is inter-governmental institutions such as the World Bank, the IMF, the UN agencies and the world trade organization (WTO) that have felt it more, owing to their lack of political leverage. Few parliamentarians will face direct pressure from the IMF or the WTO, but every policymaker faces pressure from citizens’ groups with special interests. Add to this the poor public image that these technocratic, faceless bureaucracies have developed, and it is hardly surprising that they are popular targets for NGO “swarms”. How governments and inter-governmental organizations respond to NGOs could have huge implications, including for the world’s economies. Equally important will be how NGOs themselves respond to greater scrutiny and to growing concern about how accountable they are, and to whom.
Industry:Economy
The value of anything expressed simply in the money of the day. Since inflation means that money can lose its value over time, nominal figures can be misleading when used to compare values in different periods. It is better to compare their real value, by adjusting the nominal figures to remove the inflationary distortions.
Industry:Economy
The sixth annual prize established in memory of Alfred Nobel. Strictly speaking, this is not a fully fledged Nobel prize, as it was not mentioned in Nobel’s will, unlike the five prizes established earlier for peace, literature, medicine, chemistry and physics. Still, the title of Nobel laureate and the $1m award stumped up each year by Sweden’s central bank make it worth winning. Since 1969, when its first (joint) winners hailed from Norway and the Netherlands, it has been won mostly by American economists, many of them of the Chicago school.
Industry:Economy
Although most economists support free trade, in the 1970s a growing number of them became increasingly puzzled by the large differences between the predictions of free trade theory and real-world trade flows. Their solution to this puzzle is known as new trade theory. One mystery was that trade was growing fastest between industrial countries with similar economies and endowments of the factors of production. In many new industries, there was no clear comparative advantage for any country. Patterns of production and trade often seemed matters of chance. Trade between two countries would often consist mostly of similar goods, for example, one country would sell cars to another country from which it would import different models of cars. One explanation, associated in particular with Paul Krugman of the Massachusetts Institute of Technology, drew on Adam Smith’s idea that the division of labor lowers unit costs. Economies of scale within firms are incompatible with the perfect competition assumed by traditional trade theory. A more realistic assumption is that many markets have monopolistic competition. When a monopolistically competitive market expands, it does so through a mixture of more firms (greater product variety) and bigger firms, with bigger-scale economies. Free trade expands market size beyond national borders and so allows firms to reap bigger economies of scale, to the benefit of consumers, workers and shareholders. The upside may be greater the more similar are the trading economies. This may explain why trade liberalization is easier to achieve between similar countries. Thus, for example, the free-trade agreement between the United States and Canada produced only minor local complaints, whereas its subsequent expansion to include the very different economy of Mexico was much more controversial (see NAFTA).
Industry:Economy
In the last years of the 20th century, some economists argued that developments in information technology and globalization had given birth to a new economy (first, in the United States), which had a higher rate of productivity and growth than the old economy it replaced. Some went further, adding that in the new economy inflation was dead, the business cycle abolished and the traditional rules of economics were redundant. These claims were highly controversial. Other economists pointed out that similar predictions had been made during earlier periods of rapid technological change, yet the nature of economics was not fundamentally altered. With the bursting of the dotcom stock market bubble in 2000, the phrase fell into disuse, although productivity continued to soar, thanks not least to new technology, especially in the United States.
Industry:Economy
When the value of a good to a consumer changes because the number of people using it changes. For instance, owning a phone becomes more valuable as more people are plugged into the telephone network. Network effects are sometimes called network externality, although this implies, often wrongly, that the benefits from being part of a network are a sort of market failure. They give a huge competitive advantage to the firm that owns the network. This incumbent advantage arises because a new entrant must persuade people to join a network that starts with fewer members, and thus may be less valuable to them than the network they are currently in. This is why markets for products with network effects are often dominated by only a few firms or a single monopoly. Some economists argue that many recent technological innovations, notably the Internet, have large positive network effects, which make possible much higher productivity and growth than in the past.
Industry:Economy
