EconAir

  The Red Queen's Race TWO DEFINITIONS   Fed funds rate .    The Fed funds rate is the interest rate banks charge other banks that borrow their excess reserves. It is a very short-term (overnight) rate. An increase in the Fed funds rate increases the cost of capital of large banks (net borrowers) and puts pressure on these banks to raise their lending rates. A change in the rate also changes the rate charged by other sources of short-term funds.   The Fed funds rate is the most watched interest rate in the United States and probably the world. It is not set by supply and demand in financial markets. It is set (fixed) by the Federal Reserve Bank (the Fed), America’s central bank.    The Fed funds rate determines or heavily influences almost all other short-term interest rates in financial markets. It also indirectly influences many other longer term interest rates. It summarizes how the Fed views the economy and near-term changes. It is at the heart of ...

INTRODUCTION TO MARKETS If you've taken a course in Microeconomics or a one semester Economics course, you probably came away confused. All those curves. Concepts like price elasticity of demand. To get a demand model, economics has to assume away virtually all economic and business reality. Everything business majors spend 4-6 years learning. You can forget all that, if you haven't already. It is not possible to talk about demand and supply separately and then put them together to get an equilibrium market (industry) price. Definition of market. Innovators create markets and market niches. New products, cheaper products, improved products. Potential demand. Create demand. Typical analysis assumes market already created and producers compete solely on basis of price. New products - every new product is a separate market? Introduction to market structure and oligopoly. Types of markets. Supply side. Companies on both sides of markets in a supply chain. Retailers are between supp...

      Competition: Two Meanings of the Idea of Competition This essay discusses the supply side of a market. It introduces the specialized meaning of the concept of competition used in economics.   The word “competition” is used in two ways.  One way is the common usage - the strategies or processes companies use to compete with each other.  But economists use the word in another way - to describe the structure of an industry or market. Economists divide industries or markets into two groups - perfect competition and (not surprisingly) imperfect competition.  Imperfect competition is then subdivided into three types.  They are called monopoly, monopolistic competition, and oligopoly. Oligopoly is a market structure where a small number of companies account for a large percent of total sales. It is the dominant market structure for many large markets. A later essay will discuss a special version of oligopoly called bilatera...